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The tutorial explains how to add watermarks to documents using PDF Exchange Editor. Watermarks serve various purposes such as protecting documents, indicating ownership, and discouraging counterfeiting. They can be added in text or image format by clicking the organize tab, selecting the watermarks option, and adding custom text or an image file. Font, alignment options, and macros can be customized to create the desired watermark. This process helps in enhancing document security and ownership identification.