Observation is a skill needed in life generally, but particularly in meditation. I do not mean just 'see', but sense or know, without judgement, what is front of you, or within you.
Before you can take any meaningful or skillful action, you need to assess impartially the situation in which you are about to act. If you make a map of what actually is, unbiased by your prejudices, then that map is much more useful to you. That does not mean you want to see everything as neutral or unemotionally - a situation may call for anger or a strong response, but I still think your anger will be more effective if first you sum up the situation without anger to cloud your view, if you can. Someone once said that in order to judge anyone, you must first be able to stand in their shoes.
In meditation, when observing myself, or when observing what is around me at leisure, I think the same is true. I need to just witness, and feel the is-ness of what it is I am witnessing, really know it.
An analogy is this: When I first listen to a piece of music, I can enjoy it, feel good from listening to it, but I don't really know it. I can get to know it in several ways:
1) I can look at the musical score for it - this gives some kind of understanding, but I lose the essence of the beauty the music can give me.
2) I can listen to it with an analytic or logical frame, trying to understand the composer's way of putting it together, explaining what I hear in terms of technical musical terms. At least I am listening to the music, unlike in (1), but again I forego the beauty of the musical experience in favour of the explanation of it.
3) Or I can just listen to it with both abandonment and focus, enjoying it, giving myself to it. If I do this, after a few times the music separates as it were, and I can see into it, it becomes like an old friend, I know it intimately; and, at the same time I do not lose the beauty, in fact the beauty is enhanced.
I need to treat sensory experience - both outer (my perception of the world and my own body) - and the contents of my own mind in the same way. Listen with close attention, like to a subtle and beautiful piece of music, and in merely the listening I come to understand it, see it in its entirety, see through it, see beyond it.
A similar analogy is a party, a room where there are many people talking among themselves in small groups. When I first go in the room, all I hear is a babble of noise. But if I listen intently, I can distinguish different conversations going on. I can even focus in on one particular conversation, not even looking at the people having it, but aurally focusing and hearing that conversation above all others.
I need to listen to the noise at it is, listen to the parts of it as it resolves itself into different conversations, listen to what is between the conversations, with a little openness to there being a particular conversation that it is important that I hear, without having any expectations about what such a conversation might be, or even that it actually exists, only that it might.
In other words, I need to observe things as they are, with a slight hint of looking or listening to what is beyond, or what is at the heart of the thing being observed.
Krishnamurti had an analogy: "If you look into your minds, you will see it's like thousands of butterflies whirling about! You can hardly trace a single idea in this complexity." He then went on to suggest writing down one thought, and fully understanding it.
My idea is just to look at the swirling butterflies - just gaze at them. If one butterfly is strongly predominant, then look at that one; when it merges back into the swarm, observe the swarm, with interest and focus, but attentive to what I might see in it, without being expectant - not wanting to see something particular, just focused on the swarm in such a way that I am open.
Then I begin to understand it; I might see complex patterns the butterflies are making which I did not see before; I might see something beyond the swarm altogether; I might see one particular butterfly, or group of butterflies, holding the rest together, which I did not see before.
When I can hold things in my awareness, and be aware of that as a process, it is my experience that magic can and does happen.