Here's my problem:
For example,
@S
MAC: "Want a watch?"
@1
EGO: "Yes."
return
I want that "Yes" to add an item to my inventory. How do I do that?
add-inv X (http://www.adventuregamestudio.co.uk/manual/Conversations.htm)
You'll also want to put return after the "Want a watch?" line, otherwise the "Yes" bit will run automatically (meaning the player will get the watch whether they want it or not).
And please, READ THE MANUAL. AS strazer linked, this answer is in there.