I addition to onthepike's advice I would say you are best off watermarking you files before upload. Watermarking on upload uses additional server resources which can cause problems if you are already running close to your limits.
As for protecting images from download there really is no way of doing it if you want your pics to be shown online. People have come up wil useless mode like preventing the right click etc. By the very nature of a browser those images are downloaded to your machine when you view them and with very little effort you can recover them.
So IMHO all you can do is keep the resolution low and watermark them. This way nobody will want to steal your images.
Here is a little article with some more extensive advice.
http://cameras.about.com/cs/printing/a/protectimages.htm