Cristian Battocchio had given the hosts a first-half lead but Tom Ince and Gary McKenzie netted after the break to earn the visitors an unlikely three points.
The Blackpool boss said: "I thought it was a good game all round. When I look back on the whole game, I thought we were the better team.
"Watford came at us in the first 15 minutes, Jonathan Hogg should have scored for them with a header.
"We had a couple of chances and I wouldn't say we found it hard - but we took our time to get into the game.
"But once we got into the game I thought we looked a very, very good side.
"The disappointing thing was the goal. It was a diabolical decision from the linesman - when their player kicked the ball out for a throw it was so plain to see.
"Then the geezer (Fernando Forestieri) took the throw with both feet off the ground - and then to compound that our centre-half made a mistake and we're 1-0 down.
"After that we still showed belief, we didn't drop our heads and we kept believing we could get back into the game and that's a credit to the players.
"Towards the back end of the first half we looked like we were going to get a goal back, we played some lovely football and in the second half it was more of the same.
"If you can get the next goal, they'll get a little bit apprehensive because of where they are in the league - and it proved right."