The home side took a three-goal lead after Danny Swanson, Dwight Gayle and Lee Tomlin all scored.
The Hornets reduced the deficit to 3-2 courtesy of goals from Mark Yeates and Fernando Forestieri but could not find a leveller.
Defeat, combined with Hull's 2-1 victory over Ipswich, leaves Zola's side six points adrift of third place in the Championship.
Zola was also angered by the performance of referee David Webb, who sent off Watford defender Marco Cassetti and ignored strong penalty appeals in both halves.
"It was a bad day for us and getting automatic promotion will now be very tough, but we will keep on fighting as you never know what can happen in football," said the Italian.
"We battled on until the end and could even have got a draw if the game had lasted a little bit longer.
"We paid the price for making some stupid mistakes and also for a couple of decisions that the referee could have made in our favour.
"I thought we should have had two penalties which were not given, and it is not the first time this has happened to us.
"I see things on the pitch that make me believe we have not been treated well and I said that to the referee."