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According to the Being known as John, Watts had been something of a scoundrel who had been captured and apparently continued his existence as an Eastern Alliance prisoner on Lunar One. Watts apparently had an on/off relationship with the beautifully affable Brenda Maxwell. John gave Apollo this identity in order to attempt to save Terra by words, however Apollo proved this couldn't be done, for force is the only thing that can make peace work (or so Apollo said, and was subsequently vindicated).
The real Watts, apparently, was also an acquaintance of General Maxwell and went on special missions for both Maxwell and President Arends.
Notes
This "part" was evidently for Starbuck (Dirk Benedict), however this episode was an "Apollo episode", because Richard Hatch rightly felt that his character was being pushed to the side.