To get the watermark function to work, you need to open each gallery individually. Select to edit the gallery. When it opens, you'll see a list of all the images in that gallery, along with their thumbnail and description and any text/captions. Place a check mark in the box before the images you wish to watermark. Then, select "set watermark" from the dropdown box that currently shows "no action." Then click OK. Those images will now have the watermark.
Now - for some reason, I am only able to watermark 15 images at a time. If I click any more than that, only the first 15 will watermark, then errors pop up above it. For some reason, you can only watermark 15 at a time. I think there is a bug - so hopefully someone will have an answer as to why this is, or perhaps, what we are doing wrong. Thanks!