When you go to the Send tab you will see a button 'Create unsigned transaction' at the bottom of all the fields. (Note: you will only see this if this is a watch only setup i.e. a Electrum setup with no seed).
When you select that it will create the transaction which is then saved to a USB drive which you then use on your offline PC/Electrum. Your offline installation is then used to sign that transaction.
So in short:
a) Create the transaction on your watch only installation,
b) Save the unsigned transaction and copy it (via USB drive) to offline installation where its signed,
c) Save signed transaction back to USB drive and move it to your watch only installation,
d) Broadcast it via your watch only installation to the network.
So I need a watch-only, not a regular installation of that. Correct?
Yes. A regular installation can sign the transaction as the installation includes the seed and thus all the private keys. A watch only installation/setup does not include the seed and thus no private keys and can thus not sign a transaction.
The term 'offline' signing essentially means that the transaction is taken to an 'offline' setup, one which have the seed and thus private keys, and then have the transaction signed there after which its returned to the online or watch only setup which then broadcasts the transaction to the network.
Just for clarity, for those who might not know, this is how one will go about it to have this setup:
a) You need two computers. One of which will be your offline pc and the other your daily or online pc.
b) Install Electrum on your offline pc and setup your wallet. Make sure that this pc is disconnected from the internet before you setup your wallet and never ever connect this pc to the net and or any network ever again.
c) Copy your master public key to a usb drive after you've setup your wallet,
d) Setup Electrum on your online machine,
e) Select to setup a watch only wallet and make use of the master public key you copied to do this. This Electrum setup now becomes your watch only wallet meaning that you can view all transaction and receive funds but you cannot send any funds as there is no private keys in this setup so no transaction can be signed.
f) If you want to send funds you create the transaction as normal but then select the 'Create offline transaction', save it to a USB drive, sign it on the offline pc and copy the signed transaction back to the watch only wallet which then send that transaction onto the network for processing.
