Observation is one method for collecting research data. It involves watching a participant and recording relevant behavior for later analysis. One example of a study using the observational method would be when a researcher wants to study how children manage sharing of toys. He could observe a group of children playing in the classroom, and record what things they say or do that determine who gets to play with a coveted toy.
The observation method has the advantage of providing direct evidence of the phenomenon that is being studied. In the example above, the researcher gets data on how the children actually manage to share or not share. This is more objective than other ways of collecting data like for example, interviewing the children or their teacher.