When you enable the "Enable Observation", they observe your motion (through your webcam) and will react accordingly. There's a little more detail about the Webcam Observation in the manual :)
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Webcam Observation
Enabling webcam allows the Blinkys to "see" you through motion detection. They respond to your real-world movement:
Motion is detected by comparing video frames every 100ms
Significant motion (> 30%) triggers awareness in random Blinkys
If collective trust is low (< 0.4), your movement increases their fear
If trust is high, your presence may comfort them
The "THEY ARE WATCHING YOU" indicator appears when Blinkys are aware of your cursor.
The "CAMERA ACCESS GRANTED" warning appears when webcam is active
Privacy Note: Webcam data is processed entirely locally in your browser. No video is transmitted, stored, or sent anywhere. The Blinkys only receive a single motion intensity value (0-1), not actual images. You can disable the camera at any time.