This is sort of a recap on something I refer to as "Mental Tunnel Vision".
Basically, in competitive gaming (Fighters/FPS/RTS) I've noticed that there's an incredibly huge difference in player skill/ability based around one concept: being able to watch what your opponent is doing. It's sounds really basic and fundamental, but it doesn't always come naturally. I find that many players, especially in fighters/RTS, will be so busy watching themselves that they aren't paying attention to what the opponent is doing.
But there's more to it than just that. Sometimes tunnel vision can occur even when you're paying attention to what your opponent is doing. Usually in this case it's because you're paying attention to what you think your opponent will do, and focusing on what you expect to happen next, rather than what's actually occuring.
A good example of this is sitting and watching for a jump-in so you can react to it, but focusing too much on that potential option that you don't see when the opponent dash in c.mk's you. Or, getting knocked down and expecting your opponent to meaty attack you, only to find out that they jumped and you whiffed your reversal. Neither of these would happen if you were actually looking at the opponent instead of what was in your mind.
So, in my opinion there's different levels of tunnel vision. The most extreme form is watching only what you're doing at any given time, and playing your character just based on what you feel your character should do, or just doing moves because you like them. The next level is being able to watch your opponent, but focusing too much about what you yourself thinks will happen. And the last level is being able to actually watch the opponent and allow your subconscious mind to handle your own movements and what you expect from your opponent.
It's like watching a game rather than playing the game. As a spectator/observer it's so simple to see both player's actions and you can make good calls easily. You can say "he'll do this next, and this guy will do that, and that move was so obvious, and that next move was a huge mistake that will cost later", and things like that. But really it's like looking at the game in hindsight, which most players can't do while they are actually playing. A lot of players need to grind each situation until they find out their best options, then grind those options so that it gets implanted into muscle memory as "good habits". That way when they play they can just auto-pilot and dial-the-buttons without putting much thought or attention into what's actually happening. However, these dial-a-match players on autopilot are usually the easiest to abuse with traps and baits, because they are so predictable, they do everything out of habit. All you have to do is recreate a situation where they habitually choose a wrong answer, then you can just keep doing it until they wise up.
Being able to observe, evaluate, judge, react, predict, and just generally pay attention to what's actually occurring with your opponent and not with yourself or what you yourself "expect from the opponent" (because technically it's still you paying attention to your mind) is a huge step forward.