The author's excellent 'powers of observation' [=ability to notice and pay close attention to things] are evident in the book's detailed descriptions.
The plants seem to have recovered from the disease, but they are still 'under observation'. [=someone is watching them carefully]
They're keeping him at the hospital 'for observation' [=so that doctors can watch him carefully] for another few days.
(..) Well. you're not. You're not! You're no crazier than the average asshole walking around on the streets. And that's it. Jesus Christ. l can't believe it! Those are very challenging observations you made. Randall. l'm sure some ot the men would like to comment. Mr. Scanlon? (..)1975 One Flew Over the Cuckoo's Nest