UPDATE I've done a little reading, and I see now that I was wrong at first. I've corrected the errors in the post below.
The wattage is a measure of power consumption; in this case, it measures the maximum amount of power that the resistor can tolerate without catastrophic failure. A 5W resistor can handle quite a lot of current, but under those conditions it can get quite hot. It is overkill for your needs, as your little LED will only draw a miniscule amount of power, but it will work just fine. Typically, one only needs maybe a 1/2W resistor for our sorts of projects.
The resistance (measured in Ohms) does this. The decoder supplies 12V. The LED wants (depending on the LED) say, 1.5V. If you ran 12V through the LED, it would burn very bright for just a moment, and then release its magic blue smoke. So you need something else to take up the slack (as it were). A resistor does that. If the resistance is too small, the LED burns out; this is unacceptable. If the resistance is too high, the LED may burn dimmer (which may be OK), or it may not come on at all (which is also unacceptable). The brightness of a
bulb varies proportionally to the voltage, but not so for LEDs; unless you have a datasheet with the voltage response curve, the effects of undervoltage are not really predictable.
So, conclusions: 5W:OK, 1000Ohm:maybe.
This calculator will help you figure the resistance and minimum wattage you need:
http://led.linear1.org/1led.wizSource voltage = 12V
Diode forward voltage is the voltage on your LED: likely 1.5 or 3V
Diode forward current is the current draw of your LED in milliamps, probably in the low two-digits.
It will tell you exactly what resistor you need, including how to visually identify it! :D