The difference between "watchtower" and "farm" is that a watchtower is a single tower, not a series of towers, unlike farms. If farms also needed an exception to allow stacking multiple farms, every terrain improvement would need an exception aswell.
This tower can be used as a defensive structure, and more towers within a certain area will not make the area more easier to defend (by the rules), unless the structure becomes a Fort, which is a direct upgrade for the watchtower improvement.
All those are Hex Improvements, and the only rule about those is that certain improvements cannot be constructed together with another improvement (those marked with an asterisk). Being improvements, and when the question about stacking rises, does it say anywhere that improvements can be built many times and have stacking effects? It does not.
There are only three mutually exclusive improvements, which directly affect the economy of the kingdom (by increasing BP): Sawmill, Quarry and Mine.
Since those are cheap and have restrictions on where they can be built, one would easily stack them with themselves and build an hex full of sawmills, quarries or mines. Remember, it only says that they cannot be built on a hex with another improvement, and build an economic heaven for yourself. If it did allow to stack the same improvement, nothing in the rules would prevent you from building multiple of the same improvement, as long as it isn't on the same hex as another improvement.
So we fall under one of the general rules, if it does not say that it can stack, then it does not stack.
This discussion can be also found on paizo's messageboards. It's also worth reading what Jason Nelson (the system's creator) has to say about kingdom building, as Farms were also supposed to not have an asterisk and be mutually exclusive with other improvements. The idea is that any improvement that affects the economy should be a basic improvement (and only one of those per hex) and you had the option to build extra improvements on top of them.
So you can build any one of the basic improvements bellow in a single hex:
And any number of extra improvements from the list bellow:
But the watchtower says you cannot built it on a hex with another watchtower.
Yes, it does say that, but right after that, it says that a hex with a watchtower that becomes a settlement counts as a watchtower building, and then you cannot build another improvement for a watchtower. Which is what that rule meant, otherwise your troops could benefit twice from the Defense bonus from the watchtowers (building and improvement).