Watchdog periodically resets your system which can cause problems such as unintended reset during flash programming or mass erase operation, failed debug session, etc.; however it can detect failures, e.g., if your system has hung or it is no longer executing the correct sequence of code.
The option is available in Hardware | CPU Options | Reset and it's checked by default on devices that have an internal watchdog. If Internal Watchdog is not supported, this option is greyed out.
Internal Watchdog is disabled at Default and Custom Initialization.
Scripts are distributed in the winIDEA installation directory (SFR folder) and can be enabled via Hardware | Scripts | WDOG Disable. Available on specific CPU devices.
Check Watchdog How-to for details.