Acharya Prashant explains the fundamental differences and relationships between observation and attention. Observation is described as the act of perceiving an object through the senses, such as seeing a tree or listening to music. However, he points out that true observation is often hindered by memory, naming, and image-making, which act as barriers. When we see a tree and immediately label it, we stop observing and start relying on memory. To observe truly means to see without prejudice or the interference of past mental images. He illustrates this with an exercise where different people interpret the same word differently, showing that we often live in our own subjective worlds rather than perceiving reality as it is.