Can someone explain what the com.apple.watchdog.plist does?

See Mac OS X Server: About the Watchdog Process.

Watchdog is a process designed to start, monitor, and restart other processes and services.

Never delete system files or files you know nothing about.

"Failed" is a programming term of art that is not in itself any reason for concern, or an indication that something is broken. It can only be interpreted within a larger context of macOS's operation, which is opaque to anyone other than Apple's engineers and programmers.

Should I delete this file?

No. Leave it alone.

The Watchdog daemon runs on a client system as well as a server. If it has failed then I believe the meaning is it failed to launch or launchd failed to start it. If you open Activity Monitor you can check All Processes to see if it is loaded and running.

I confess I don't know what John means by, '"Failed" is a programming term of art that is not in itself any reason for concern ...' I don't recall seeing that as a term used in any art class I attended. As far as programming is concerned I think it means the same thing as in any other context. But I could be wrong. John is a font of much knowledge.

See this article View information about processes - Apple Support

• Open activity monitor via spotlight in the search field type watchdogd
• Get information about a process: Select the process, then double-click it or click the Info button in the Activity Monitor window (or use the Touch Bar).

After that click on sample > it will prompt to enter Admin password , it will show please wait sample is taken , click on save .

And where is com.apple.watchdog.plist in system library , user library and in which folders , without any information of any plist don't delete the plist it can corrupt the system .