A watered-down plan, law, report or apology is one that has been made weaker than it first was. Someone took the strong version and softened it — cut out the parts that had teeth, removed the deadlines, dropped the punishments — usually because of pressure from people who did not want the strong version. The word carries clear disapproval. If you call something watered-down, you are saying it has been robbed of its force and is now not much use.

You see it constantly in news about politics and business: a watered-down version of the bill, watered-down sanctions, watered-down safety rules, a watered-down agreement that everyone could finally sign. Notice the last one — the reason things get watered down is usually that a weak agreement everybody accepts is easier to get than a strong one somebody blocks. Understanding that makes the word much easier to use correctly.

The picture behind it is literal and very old: adding water to wine, milk or beer so there is more of it but it is weaker — historically a dishonest thing a seller did to cheat customers. That flavour of cheating still clings to the figurative use. It also still works literally ('watered-down soup'), and it can be used of art or ideas that have been made blander for a wide audience — 'a watered-down version of the original film'. Use a hyphen before a noun (a watered-down proposal); after the verb you can write it either way, and the verb phrase is `water down` ('they watered down the report').