|“||Fire on the first enemy that moves within your line of sight at a small Aim penalty.||”|
– In-Game Description, XCOM: Enemy Unknown
Aim is reduced to 70% of normal, and an additional 70% if target is Dashing. Thus, a soldier with 80 Aim would have a base chance of 80 x 0.7 = 56% to hit a reaction shot, and 80 x 0.7 x 0.7 = ~39% for dashing targets, not including other modifiers such as range and perks.
Overwatch is only triggered by enemy movement, not attacks (unless the unit on Overwatch has the Covering Fire ability). All available units on Overwatch will fire on an enemy the moment they see it - at once. This is the only time in the game multiple units can perform simultaneous attacks.
Overwatch won't be triggered if a unit only moves one tile (up to two tiles in Enemy Within) or can move to the exact edge of an opponent's line of sight; for example, if your unit stops at the corner of a building they will be able to peek around the corner without triggering the reaction shot. This is especially useful on Multiplayer, where an enemy Sniper can easily take out a unit in one reactive shot.
If it is necessary to risk triggering an enemy's Overwatch, your best possible option is to move an Assault with Lightning Reflexes first, as the first Overwatch shot against that unit during the turn is forced to miss, effectively causing the opponent to waste their shot. Using Suppression or Flush against a unit will also break their Overwatch and is your second best option. Otherwise, Dashing with a unit that could absorb a possible hit (or a cheap sacrificial unit in Multiplayer, such as a Sectoid) is your next best option; Dashing grants a defensive bonus (0.7x Aim) against reaction shots. Another alternative option if you have an appropriately skilled Psionic unit using a Mind Controlled enemy to trigger and soak up Overwatch shots.
When using Overwatch be aware of the accuracy penalties your units will receive. It may be better to Hunker Down and double their Defense bonus rather than risk missing a shot with reduced aim and remaining exposed; this is especially true when fielding Rookies with low accuracy and weak weapons early in the game.
A Sniper's Opportunist ability removes the Aim penalty and allows for critical hits, making them very deadly on Overwatch especially if coupled with a highly damaging weapon. You can also train Snipers to use Squadsight, which allows them to shoot at enemy units that their comrades can see, even if the Sniper him/herself can't as long as their line of sight is maintained. With Squadsight, a Sniper can avoid danger through the entire battle while raining tons of damage to the enemy, making it a very powerful ability.
On higher difficulties, Overwatch is useful for taking out enemies as they are out of cover and therefore vulnerable to your shots. When used properly Overwatch is arguably one of the best abilities in the game and is very effective when executing bounding overwatch maneuvers.
If your entire squad leaves the aliens' line of sight, they will often move to good cover positions and activate Overwatch, ready to strike at your soldiers should they enter line of sight again. They may also Overwatch if they have poor shot percentages, especially if you are keeping them Suppressed. Sectopods automatically enter Overwatch after using their Cannon Fire ability. In XCOM: Enemy Within, Cyberdiscs, Mechtoids and Sectopods all frequently enter Overwatch when first spotted.
During Council Missions, certain aliens will drop onto the battlefield from above. The dropping aliens (Thin Men) always go to Overwatch when they drop; even if they drop into your Line of Sight, they will not fire. However, their appearance counts as movement, and will trigger Overwatch from your own squad; use that to your advantage by having your squad go to Overwatch once you believe you've cleared the map (Central Officer Bradford will often warn you of this). As long as you take them down before they have the chance to move, they won't pose too great a threat - since the Thin Men will never drop into a location with cover, they are relatively easy to deal with. On later missions, however, their sheer numbers will sometimes allow them time to move into cover; multiple-firing abilities (Bullet Swarm, Double Tap, and especially In The Zone) are extremely useful in these situations.