A watermark  is a faint picture which can be added to the background of your text.  The text is normally left to sit on top of the watermark so you do not need to set any wrapping details although you may wish to change the colour or brightness of the watermark to make it fainter.  To add a watermark, display the document header by clicking on the View drop-down menu and choosing Header and Footer.  Now click on the Show/Hide Document Text icon on the Header and Footer Toolbar to hide the text of your document.  You can now use the Insert menu to add a picture or WordArt as your watermark. Drag the graphic out to the size of the page.  When you have finished inserting your watermark, close the Headers and Footers toolbar and you will be returned to your document.  

If you don’t want your watermark to appear on every page of your document you can section breaks to make different headers on subsequent pages.  Alternatively, if you only want a watermark on one page you can insert it like a normal picture and set the positioning to 'behind text'.  Click your right mouse button on the graphic and choose the Format option and then use either use the Colors and Lines tab to change the shading of graphics like WordArt or use the Picture tab for other graphics to adjust the contrast and brightness to make it fade.  There is a special colour setting under the Picture tab on the Format Picture window called 'Watermark', this will automatically fade your image for use as a watermark.