What file format should my watermark be? Any gotchas?

A tightly cropped transparent PNG is the ideal — transparency means the watermark sits cleanly over the photo without a white box around it. PNG, JPG and WebP are all accepted for logos and watermarks, and the preview screens use a white background so you can see whether your artwork actually has transparency or is hiding a rectangle. If your logo comes with a coloured background baked in, that's the thing to fix before uploading it.