PHPMaster.com has a recent tutorial showing how to use the built-in Imagick extension to watermark your images effectively. It talks about what makes a good watermark and how to superimpose one on your images with a bit of sample code.

Imagine a friend of yours approaches you one day and would like you to build her a website so she can showcase her photography. She wants to be able to easily upload her photographs and have them watermarked so that people can't easily steal them. "Don't worry!" you tell her, because you know there are functions provided by the Imagick extension that makes watermarking images a breeze in PHP.

He talks about things like watermark transparency, the size of it (how much of the image you want it to cover) and the contrast of the watermark image to make it stand out from the image enough to be useful. Their example image and script puts the PHPMaster.com logo over the center of the image and includes a bit of code showing how to scale the watermark image to fit the image (this versus this.