Your knowledge of the standards will come with experience.
What I do with my observations is write a paragraph and then leave two or three lines and then write some more. When I subsequently assess the observation against the standards and come across a PC that I did observe but didn't record I then can add it to my record. (I write my observations by hand as they happen)
Another thing you can do is have the standards on your clipboard as you are writing the observation, this will prompt you what to look for and record.
Having sight of work products and confidential documents is supporting evidence rather than an observation. You could include in your observation that you have seen the evidence, signposting where the evidence is filed, or you could include it in a professional discussion - an important and useful tool for a level 4 NVQ.
I didn't appreciate that you were asking about a level 4 NVQ. I would not be too worried about the number of observations as at level 4 you are looking for competence at a more theoretical level such as planning and budgeting etc. These can usefully be covered by a professional discussion with the candidate presenting his/her evidence for a particular unit to you.
Hope this helps.

Dave