Observation ranges from an informal method, where the researcher watches a user and takes notes, perhaps inter- rupting and asking questions, to a very formal method, where a video camera records and time stamps a user at work while a program records the keystrokes used
Observation is effective because the researcher can observe the user directly. In market research, users are typically placed in a room with a two-sided mirror, a camera, and sound recorder; this allows the researchers to observe the users in a separate location -- allowing the users to feel more comfortable and less pressured as they complete the tasks at hand. Hopefully, if the users are more comfortable and in a relaxed setting, they will provide useful (and truthful) feedback.