If something such as an event is a watershed in the history or development of something, it is very important because it represents the beginning of a new stage in it. Synonym: turning point, defining moment, pivotal moment, tipping point. (https://www.collinsdictionary.com/dictionary/english/watershed)
An event marking a unique or important historical change of course or one on which important developments depend. A watershed is a turning point, or historic moment. (first page Google results)
Even the word watershed needs clarification. What I mean is this: In a mountain range, there is a crest from which all the rain, or all the melting snow, flows irreversibly toward one ocean or the other. As the water flows, it may have many twists and turns, but the ocean to which it is flowing was decided way upstream — at the watershed.
A watershed issue is like that. When the human mind and heart approach a watershed issue, the direction of the mind and heart on that issue sets in motion a way of thinking and feeling that may have many ambiguous twists and turns, but lead toward one ocean or the other.
Not every issue is a watershed issue. People may hold differing positions on some issues, and not find themselves streaming farther and farther away from each other toward different oceans. But a watershed issue is so pivotal, so formative, so pervasively influential that, even when the surrounding terrain looks similar, the rivers are flowing apart.
(https://www.desiringgod.org/articles/the-watershed-issue-in-every-generation)