Watches carefully (8)
(Other definitions for observes that I've seen before include "Notices or becomes conscious of" , "Notices; comments" , "notes" , "Acts as member of royal corps" .)
'watches carefully' is the definition.
(I've seen this in another clue)
This is all the clue.
(Other definitions for eyes that I've seen before include "Witnesses" , "Poetically, they're the windows of the soul" , "Looks at carefully" , "Optical organs" , "Looks at - organs" .)