You can use the Insert > Picture > From File command to insert a JPEG
file into a Word document.
There's a wrinkle to this, though: If you insert the JPEG image in the
main body of the page and then insert a watermark (which is anchored
in the header,
http://sbarnhill.mvps.org/WordFAQs/AnchorToHeader.htm),
the watermark will always be behind the picture no matter what format
you apply to it. The fix for this is to open the header area, select
the watermark, and cut it to the clipboard; then close the header, put
the cursor next to the picture, and paste; finally right-click the
watermark and click Order > Bring In Front of Text.
I'm not a user of JASC so I don't know about that, but it is possible
to do something similar in Photoshop without using Word at all. (These
instructions are from Photoshop LE 5.0, a freebie I got with a scanner
a long time ago, so some translation may be necessary.) With the
picture open, create a new layer. Click the Text tool, and click
somewhere in the canvas. The Text dialog opens; enter the text of the
watermark, choose the font and size (I used Arial Black at 64 pt), and
click OK. Use the rectangle tool to draw a selection around the text.
Click Edit > Transform > Rotate, and drag counterclockwise around the
selection to set it at an angle. Set the layer's transparency as
desired -- I thought about 40% looked good. Finally, click Layer >
Flatten Image and save to a new filename.