Observer here doesn't mean the same as the layman meaning. It's anything that interacts with the system while it's developing.

Interestingly, it actually can be used for a presence detector, at least in a sense. You can use it to transfer cryptographic information. If no-one is listening in, about half your sent numbers are wrong, but you can agree on what ones. However, if someone is listening in, all your data gets randomised.

They actually now use this system to transfer information between banks. They send a random stream of 0s and 1s over a fibre optic cable. They then send (semi publicly) which bits made it properly. If someone spliced into the fibre, they would get the encryption data, but the target bank would not! They know instantly that something is wrong.