Does TOR keep me safe from the "Internet Watchers?"
Yes, if used correctly [*]. However, for China you'll have to put a bit more work in: you won't be able to use Tor out of the box.
Before looking at China, first consider your home ISP. If you just download the bog-standard Tor Browser Bundle and boot it up, your ISP will know you're using Tor. They won't know what you're using it for - they can't see into the encrypted traffic - and they possibly won't care, but the first relay you'll connect to in the Tor network will have a publicly known IP address, and one which your ISP will presumably be monitoring connections to.
Some ISPs actively block connections to these publicly known relays. In such cases, the recommendation is to use either Tor bridges, which are relays whose IP address isn't publicly known (and so the ISP doesn't know to block connections to it), or traffic obfuscation measures called pluggable transports.
And so it is for China. Except in China they have lots of money and lots of clever people whose job it is to work on the Great Firewall and thwart Tor users. (Among other things.)
In China you'll certainly need to use pluggable transports. (Bridges aren't enough because the traffic still looks like Tor traffic, and China is clever enough to be able to spot its signatures. If you're interested in more details, see this blog post.) This question from a couple of weeks ago suggests certain pluggable transports might not be sufficient anymore, though one of the answers does suggest that Meek is still okay.
Also, I plan to use it on an old Windows XP laptop machine just in
case it gets confiscated for some reason. Is this a mistake?
I'd recommend against using Windows XP. It's no longer supported by Microsoft, so vulnerabilities in Windows itself are no longer being patched or fixed. You just don't know what information it could be potentially leaking, Tor or no Tor.
I'd suggest using either a Linux distribution (like Ubuntu), or Tails, which runs everthing through Tor by default. If you're used to using Windows and aren't familiar with Linux in general, then give yourself a bit of time before you go to get up to speed...
...and in general, make sure this is all set up and running before you go, as once you're there it's an order of magnitude more difficult to do so. (Which is also the experience I had when I was there.)
[*] Are you safe from people watching you?
Well, yes, but you need to be aware of your threat model. The main threats are covered in this page on the Tails site. Even if you decide against using Tails, the more general threats still apply.
There's also a nice diagram on the EFF site that shows which parts of your data are visible to who at various points in the data stream, whether you're using Tor/HTTPS or not.
