This is a passive skill that is mostly used when a check is performed whether a character gains some information or not. It is mostly used in the following cases:
When a character uses a character crystal that reveals a targets morality
A character needs at least 1 observation to get clues from a crimefile
When adding clues to a crimefile to determine a criminal, the observation skill determines whether this clue reveals the real criminal or a false one
when examining a "dirty notebook" that reveals rumors running around about a character, at least observation of 2 is necessary to activate the notebook and make it useful
When stealing from a character's pocket, the victims observation skill determines whether a crime is generated against the pickpocket
When manufacturing crime trace objects, observation is used as production skill
When hiring a prostitute, the customers observation determines whether a rumor about the prostitute is generated or not
Characters with high observation are not very well accepted in the underworld and receive a malus in their Underworld Social Rank
In general, expect from the observation skill in Sociolotron what you would expect from observation skill in Real Life and you are about right.
(c) 2005, Sociolotronics LLC