Yes, it is quite popular. There are a number of fans who like to combine the two concepts. They love to see how the heroes and villains of Overwatch would fare in the intense battles characteristic of Death Battle. There are various online platforms where such fanfiction is shared and discussed, which shows that there is a significant audience for it.
In Overwatch watches Death Battle fanfiction, you can often find unique crossovers between the Overwatch characters and the scenarios typically seen in Death Battle. For example, there might be battles written where an Overwatch hero takes on a character from another universe in a fight - to - the - death scenario. It can also include interesting takes on the powers and abilities of Overwatch characters in these extreme battle situations.
No, 'Overwatch' is a game, it doesn't have the ability to 'watch' fanfiction. Fanfiction is written by fans for fans to read, and while the developers of Overwatch might be aware of fanfiction, the game itself doesn't engage with it in the sense of 'watching'.
One popular type of fanfiction might be those that expand on the backstories of the characters seen in the Overwatch watches shorts. For example, a story could focus on the early days of a character like Tracer and how her experiences led to the events shown in the shorts.
Typically, it might feature the characters from strq observing the intense battles in Death Battle. There could be a lot of reaction elements, like shock, excitement or analysis from the strq characters.
Yes, it likely exists. There are fanfiction for all sorts of combinations in the world of fandoms. Since both Spiderman and Death Battle are popular topics, it's very possible that someone has written fanfiction that combines the two, and Spiderman could be depicted as reading or being involved with such fanfiction within that fictional story.
There are often fanfictions that involve crossovers in 'watches death battle' scenarios. Imagine a battle between a superhero from the DC universe and a powerful anime character. These crossovers can lead to really exciting and unexpected plot twists as the different power systems interact.
Maybe Spiderman gets some new combat ideas. He could see some unique fighting styles in the Death Battle fanfiction and incorporate them into his own superhero battles.
Obviously, Sonic himself is extremely popular. He's the main character, after all. Tails also often makes an appearance as Sonic's sidekick. Knuckles is another popular one, with his strength and connection to the Chaos Emeralds. And then there are the villains like Dr. Eggman who are frequently part of the death battle scenarios in these fanfictions.
You need to be familiar with the Overwatch lore in general. The events in the watches shorts are just a small part of the bigger Overwatch universe. Understanding the history of the game, the different factions, and how the characters interact with each other will give you more material to work with. For instance, if you know about the history of Overwatch as an organization, you can better incorporate it into your fanfiction.