She wore a diamond-encrusted watch to the dinner party, catching everyone's attention.

diamond-encrusted 是由名词 diamond（钻石）和动词 encrust（镶嵌、覆盖）的过去分词形式 encrusted 组成的复合形容词。diamond 指"钻石"，encrusted 来自动词 encrust，意思是"用...覆盖或装饰表面"。 diamond-encrusted 形容物品表面镶嵌或覆盖着钻石，表示"镶满钻石的"。