After reading this question, I was a little confused; it sounds like some daemon reacting by rebooting a system. Is that right? Is it a common occurrence in embedded *nixes?
Having a watchdog on an embedded system will dramatically improve the availability of the device. Instead of waiting for the user to see that the device is frozen or broken, it will reset if the software fails to update at some interval. Some examples:
The device is designed in such a way that its state is saved somewhere periodically(like Juniper routers that run FreeBSD, Android phones, and dvrs that run linux). So even if it is rebooted it should re-enter a working configuration.