"Watch it!" means "Be careful!"

There are two situations in which English speakers say "Watch it!"

• When there's something dangerous for the listener to be careful of. For example, if you're walking on the sidewalk with your friend and your friend almost steps on someone's dog, you can yell:
  

  Hey! Watch it!

• To warn someone that you're starting to get angry and that they should change their behavior. Parents say this to their children when the children misbehave:
  

  Watch it! If you keep acting like that, I'm going to take away the iPad for the rest of the day.