The Watchfire is a special building first released during the 2013 Easter Event. It could also be won in the casino during the 2013 Summer Event and the 2014 Easter Event, and now appears regularly as a prize in subsequent events.
It gives a stacking 4% defense boost to your city army's defense rating, meaning it only comes into play when your city is attacked by another player.
Upgrade[]
The Watchfire can be upgraded by Watchfire Upgrade Kit item. To upgrade the Watchfire, use the Watchfire Upgrade item on the Watchfire that is already situated in your city. Its upgraded version will then be placed directly on the same spot in your city. The upgrade adds 2% to the Watchfire for a total of 6%.
Strategy[]
The Watchfire has many useful characteristics. At 4% defense bonus two of them have the same impact as a Ritual Flame, but with the added placement flexibility of each only taking up a single tile. With one or both Watchfires upgraded, they are 25-50% better than a non-upgraded Ritual Flame, but equal to a Level 2 Ritual Flame which only takes 1 upgrade. On a per-tile basis, Watchfires (and Ritual Flames) have an outsized impact over other defensive buildings such as the Monastery, the Athlete Living Quarters, or even the defensive Great Buildings, the Cathedral of St. Basil, Deal Castle, and the Terracotta Army.
However, Watchfires originally could not be upgraded and now cap at a 6% bonus - unlike Great Buildings which can, theoretically, be leveled significantly higher. Watchfires also only impact your city army's defensive stats, not their attack stats, effectively hardening your defenses. It's still quite possible for a sufficiently buffed attacking army to wear down your city's defense if your army isn't hitting them back hard enough during the battle. Finally, Watchfires only provide a defense bonus - no coins, no goods, no other production modifiers.
All that said, Watchfires are an effective way of increasing your city's defense, and extremely cheap - if not the cheapest - in terms of space cost.