Higher grade watches have traditionally used a jeweled movements, which means that jewels (originally natural ruby, now synthetic ruby) were actually used in the movement. These jewels are functional - they are used as the bearings for the wheel trains and in high wear parts such as the escape lever and impulse jewel.
A lower-end movement from before 1970 would typically use 5 or 7 jewels; this end of the market has pretty much been taken over by quartz. Nowadays, most manual wind watches will have a standard complement of 17 jewels, which are:
1: Impulse jewel (the part of the balance wheel assembly which receives a kick from the escape lever)
2-5: Balance staff pivot bearings (two pairs - in combinations of one pivot jewel (i.e. jewel with a hole to receive the axle (pivot) of the wheel) and one cap jewel (i.e. jewel without a hole outboard of the pivot jewel, to prevent excessive movement of the balance staff), usually shock protected)
6-7: Escape lever pallets (one pair)
8-9: Escape lever pivot bearings (one pair) 10-11: Escape wheel pivot bearings (one pair) 12-13: Fourth wheel pivot bearings (one pair) 14-15: Third wheel pivot bearings (one pair) 16-17: Center wheel pivot bearings (one pair)
Courtesy of watchbuys.net