If you're using DNN 5, you can use jQuery (suggested):  http://plugins.jquery.com/project/Watermark

If not, or if you want more overhead, use the AJAX Extenders:  http://msdn.microsoft.com/en-us/library/bb470384.aspx

An example of implementing the watermark can be found here:  http://msdn.microsoft.com/en-us/magazine/cc135984.aspx

The first thin you need to do is include the watermark plugin.  There are a variety of ways to do this.  I have blogged about how to do this using PageBlaster, and my own (free) Content Injector module.  You would just replace the jQuery script itself for the jQuery plugin you're trying to use.  Alternatively, you might even find luck doing this in the Page Settings, though I have never tried.

Anyhow...

Once you find the plugin you're trying to use, it will have documentation on how to use it.  For example, the most simple implementation would ask you to call a "watermark" method on the DOM elements in question.  Using your example ID, here is how this might work:

<script language="javascript" type="text/javascript">
     jQuery('#dnn_dnnSEARCH_txtSearch').watermark();
</script>

Keeping the last example in mind, you would likely need to pass in the watermark text to use as well, so that example would probably be better written as this:

<script language="javascript" type="text/javascript">
     
jQuery('#dnn_dnnSEARCH_txtSearch').watermark('Enter Your Search Terms Here');
</script>

Either way, this script would need to be added to the page too.  This can be accomplished the same ways that I suggested above.  Remember to read the documentation for the plugin.  It literally tells you everything that you need to know.