Also called a drainage basin, a watershed is an area of land where water from rain or snow melt drains downhill into a body of water, such as a river, lake, reservoir, estuary, wetland, sea or ocean. The drainage basin includes both the streams and rivers that convey the water as well as the land surfaces from which water drains into those channels, and is separated from adjacent basins by a drainage divide. The drainage basin acts like a funnel, collecting all the water within the area covered by the basin and channeling it into a waterway. Each drainage basin is separated topographically from adjacent basins by a geographical barrier such as a ridge, hill or mountain, which is known as a water divide. Other terms that are used to describe a watershed are catchment, catchment area, catchment basin, drainage area, river basin, and water basin. Watersheds drain into other watersheds in a hierarchical form, larger ones breaking into smaller ones or sub-watersheds with the topography determining where the water flows.

For more, visit the EPA's "What is a Watershed" page, URL: http://www.epa.gov/owow/watershed/whatis.html