Crossword Genius

One sees royal couple below using smallest room? (8)

Ross

I believe the answer is:

onlooker

I'm a little stuck... Click here to teach me more about this clue!

'one sees' is the definition.
(somebody who looks on)

'royal couple below using smallest room?' is the wordplay.
I cannot really understand how this works, but
'royal' could be 'er' (abbreviation for Elizabeth Regina) and 'er' is found within the answer.
'room?' could be 'loo' (loo is a kind of room) and 'loo' is found within the answer.
This explanation may well be incorrect...

Can you help me to learn more?

(Other definitions for onlooker that I've seen before include "Non-participating observer" , "Person watching" , "One observes" , "He stands and watches" , "Non-participant" .)

I've seen this clue in The Telegraph.
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