How do I read what I'm seeing in a playtest?

You're doing the right thing, watching real people play, but watching without knowing how to read it is like staring at a language you don't speak. The information is all there in front of you. You just haven't learned yet what to look for. That's a skill, and skills are learnable. Start with a simple idea: the moments that matter are the ones where something changes. Where does the player pause, confused? Where do they light up? Where do they do the thing you didn't expect? You're not trying to absorb everything. You're hunting for the specific points where the experience breaks or sings. The rest is background. So give yourself one thing to look for at a time. This session, only watch for where players get stuck. Next session, only watch for where they lose interest. Narrowing your focus turns a blur of activity into clear signals. Read one thing well, then add another. Soon you'll take in the whole picture without even trying.