A watermarked photo is a copyrighted photo, usually from a stock photo company. While they may be "published" online, they are published with the watermark. If you want a copy of the stock photo without the watermark, you have to purchase it from the company. What you're really purchasing is a contract for the rights to reuse that photo, with specific conditions itemized in the contract. Using watermarked photos is, basically, using someone elses copyrighted work without their permission.
Pixelated photos are are poor images taken on a digital camera, something like grainy photos taken on a film camera. Usually, though, in the case of digital photos, the pixilation appears because the photo has been cropped and enlarged too much. This produces a really poor image. In this case, taking another photo or zooming back out on the original photo may solve the problem.