Watson sees Barrymore at a window with a candle in the middle of the night.
Henry Baskerville comes to Sherlock Holmes when Charles Baskerville is murdered. Henry might be next. Holmes pursues another line of inquiry, and sends Watson to Baskerville Hall. Watson’s job is to observe and report, sending letters to Holmes regularly. In one such letter, he reports a strange late-night sighting of the house servant, Mr. Barrymore.
Last night, about two in the morning, I was aroused by a stealthy step passing my room ... a man who walked softly down the passage with a candle held in his hand. ... [it] was Barrymore. He walked very slowly and circumspectly, and there was something indescribably guilty and furtive in his whole appearance. (Ch. 8)
Watson is a good investigator, but he is no Holmes. Nonetheless, the story is an interesting one. Watson investigates, even following the Barrymores as they act suspiciously. He also lets Sir Henry know something is going on. Thinking that he is really on to something, he starts to feel quite proud of himself.
What Watson has discovered turns out to be nothing more than a red herring (a clue left to put the reader on the scent of the wrong clues). The Barrymores have a secret all right, but it has nothing to do with the murder of Charles Baskerville. It has nothing to do with the Baskervilles at all.
"My unhappy brother is starving on the moor. We cannot let him perish at our very gates. The light is a signal to him that food is ready for him, and his light out yonder is to show the spot to which to bring it." (Ch. 9)
It turns out that Mrs. Barrymore’s brother is an escaped convict. Although the escaped convict sort of seems like a good murder suspect, he is not the murderer. Still, Watson discovered and investigated suspicious behavior. Good job Watson! He showed he has some talent for detective work on his own. Holmes might have solved it sooner, but Watson solved it.