One of my favorite song cloze activities uses 'The Logical Song' by Supertramp. Whenever I play the music, almost every student struggles with the expression, 'Watch what you say!' When I ask them, 'What would you yell if someone were about to cross the street and a car was coming?' and I give the clue, '_____ out!', they usually give me the correct word. Then I proceed to give other examples from real-life situations.
To illustrate other uses, I tell them about a very tall, non-native speaker who was boarding a small commuter flight from San Diego to L.A. The stewardess stood at the top of the staircase and told passengers to 'watch your head.' My husband was behind the guy who failed to lower his head and smashed into the top of the door. There's another incident which was related to me by one of my Korean students. He rode the bus to school and one morning decided to leave by the front door. When the door opened, he was about to step down when the driver warned, 'Watch your step!' Upon hearing the remark, the student didn't step down and turned to look at the driver. She repeated the comment, 'Watch your step.' The student stood staring at the step, not knowing why he should look at the step. He turned to the bus driver again, and she repeated the warning. Meanwhile, people were waiting to get on the bus. Finally, the student looked at the driver and commented in frustration, 'I AM watching the step!' The bus driver shook her head in disgust and said, 'Whatever....' The student got off the bus, blushing, and realized as soon as he stepped down that she was simply trying to tell him to be careful as he stepped off of the bus.
Most non-native speakers don't quite 'get' these expressions because they're brief and sometimes sound like little niceties, rolling off native speakers' tongues and correctly assumed to be ones for which there are no required responses, other than a nod of the head. My student paid attention to the expression, actually trying to understand the words and its meaning.
"Watch out!", "Watch your head", and "Watch your step" are American expressions that are used very similarly to the British English expression "Mind your head" and "Mind your step." Mind what you say. Mind your manners!
Here are some other examples in context: from Tony and Thomas's amazing Contemporary Nomad blog, and another from a newspaper article. Now maybe you won't slip and fall, step on a spiny fish, or bump your head when you see or hear these warnings.