As shaneystar2 says, he was a doctor and was invalided out of the army and given a small pension. At first he did not work due to his injury.
In fact the small pension was how come he shared with Holmes in the first place, he was looking for someone to share the rent on a flat.
But he does not share a house with Holmes all the time.
In one of the very early books he meets a young lady who is part of the story and he eventually marries her.
They live together and he works as a doctor (GP).
He pops in to see Holmes from time to time and it always happens that Holmes has an interesting case on and Watson assists him.
I seem to remember later on his wife dies and he does go back to live with Holmes (a while since I read the books).
As shaneystar2 says, he was never a private detective, just assisted Holmes in his cases ("have you got your gun Watson").
But being rather dim when it came to solving crimes it gave Holmes an opportunity to describe to him how he solved the crime (or spotted some other obscure fact such as a person he met had just come back from South America).
It is the fact that the "dim" person is having to have everything explained to him by Holmes that makes the partnership so good and the stories so good.