A watershed is an area of land upstream of a waterbody (a point in a stream or the outlet of a lake) in which all the surface water drains to the waterbody. A watershed is delineated by starting at the point in a stream or the outlet of a lake and following the highest elevation of land that divides the direction of flow until returning back to the point or outlet. 

New Hampshire consists of many interconnected watersheds of widely varying shapes and sizes. Every spot in the state is part of one or more watershed. Watersheds are coded using up to 12 digits according to the Hydrologic Unit coding standards developed by the USDA and other state and federal agencies. A “Hydrologic Unit” is a watershed that meets the criteria of a discreet unit set forth in the standards. Watersheds in the Northeast that flow into the Gulf of Maine and Atlantic Ocean begin with “01”.  The major river basins are then added to make a 4 digit code. “0107” would code for the Merrimack River. The watershed of a point in the Merrimack River as it enters Massachusetts contains all the lakes and streams (and all the watersheds of the lakes and streams) that eventually flow into the Merrimack above this point. The final outlet point of the Merrimack River is in Newburyport, Massachusetts where it enters the Atlantic Ocean. The watershed of Profile Pond, located under the nose of the Old Man of the Mountain, is a relatively small area draining the steep slopes around it - and is also part of the Merrimack River watershed. Lake watersheds contain the watersheds of all lakes that drain to the downstream lake. For example, the watershed of Lake Winnipesaukee (0107000201) contains the watersheds of a number of lakes, including such lakes as Waukewan, Kanasatka and Wentworth. And Winnipesaukee is part of the watershed of Lake Winnisquam (010700020201), which flows into the Silver Lake, Tilton watershed (010700020202). The drainage of these lake watersheds inevitably flow into the Winnipeasaukee River combining all upstream watersheds into the Winnipesaukee River Watershed (01070002) - and all this is one small part of the larger Merrimack River watershed (0107), which is part of the Gulf of Maine watershed (01), which is part of the Atlantic Ocean watershed.