Before Episode I
Sometime before the events of Episode I, Watto acquired two slaves from Gardulla the Hutt; Shmi Skywalker and her young son, Anakin. They both served in his junk shop in the city of Mos Espa on Tatooine.
When the personal ship of Queen Amidala of the Naboo was forced to land on the desolate planet Tatooine, Jedi Knight Qui-Gon Jinn, Jar Jar Binks, their droid R2-D2 and the queen herself, posing as one of her own handmaidens, journeyed to the nearby city of Mos Espa in order to find a replacement hyperdrive for their ship. They came to Watto's junk shop and offered to buy the parts they needed, but Watto refused Jinn's offer of Republic Credits.
One of Watto's slaves, a child named Anakin Skywalker, offered to enter the Boonta Eve Classic podrace in his custom-built podracer in order to win them the money they needed. Jinn, seeing no other choice, reluctantly agreed, and made a deal with Watto that stated that if Skywalker won, Watto would keep all the winnings apart from the price of the hyperdrive, but if Skywalker lost, Watto would keep the Queen's ship. Persuaded by greed, Watto agreed.
At the preparations for the race, Watto met with Jinn again. Bragging about how the favourite, a Dug named Sebulba, was going to win, Jinn challenged him to a bet. If Skywalker lost and Sebulba won, Watto would keep the podracer. However, if Skywalker won, both the boy and his mother would be freed.
Watto was refused these terms, claiming that the podracer was not worth two slaves. Jinn then asked for the boy, but Watto, reluctant to give up his best slave, decided to roll a chance cube to decide which of the slaves it would be. Using the Force to manipulate the die, Jinn made the cube land on blue, which stood for the boy. Deeply annoyed, Watto flew off, bragging to Skywalker about how his friend Jinn was going to lose everything if he didn't stop his betting.
Watto watched from the stands as the race began. After stalling early on in the race, it looked like Skywalker was not gong to win, but he fought back, eventually defeating Sebulba and winning the race.
Watto met with Jinn after the race, claiming that he had lost everything in his bets. Believing that Jinn had somehow cheated him, Watto demanded the boy back. Jinn refused and asked if he would like to discuss the matter with the Hutts. Watto, knowing of the Hutts' fearsome reputation, reluctantly let Skywalker go.
Before Episode II
Sometime after he had lost Anakin, Watto sold the boy's mother, Shmi, to a moisture farmer named Cliegg Lars, who eventually freed and married her.
Watto ran into Anakin Skywalker ten years after he had lost him to Jinn. Skywalker, now a Jedi Padawan, met with Watto outside his junk shop and helped him repair a broken pit droid. Amazed at his expertise, Watto realised that it was Anakin and welcomed him warmly.
Role in Lego Star Wars
The original variant of Watto only appeared in the set 7186 Watto's Junkyard, released in 2001. The minifigure was almost entirely blue, with no printing and full-length legs, in contrast with the shortened legs of the 2011 redesign. Due to its rarity, having only appeared in the one set, the minifigure is highly sought after and fairly expensive. The minifigure was mainly made up of a single sandwich-board piece, similar to that used on Wookiees and Ewoks.
Watto was completely redesigned in the set 7962 Anakin's and Sebulba's Podracers, which was released in 2011. This minifigure featured printing and was far more detailed than the previous variant. Unlike the previous variant, this minifigure had wings centred more to the back, had a darker blue skin colour and had grey hands instead of blue. In addition, the minifigure had shorter legs that better suited his character. Like the previous variant, the minifigure was primarily made up of a sandwich-board piece.