A watershed is a turning point, or historic moment. The day you got your braces off might have been a watershed moment in your life.
Watershed is a geographical term, originally. The area that drains into a single river is the watershed for that river. Watershed can also mean a ridge, like that formed by a chain of mountains, which sends water to two different rivers on either side. It's from this meaning that watershed came to mean a turning point or dividing line in social life.