Many commentators explain the Mishna to mean that Hashem Sees everything and we have the choice to do good or bad.

This can be understood a bit deeper as well. Not only does Hashem See everything but He controls everything as well. The great Rav Moshe Cordevero, explains that even when a person sins at that exact time when he is sinning Hashem see's and even gives him the power to commit the sin. This is an extraordinary form of Mercy on Hashem's part by allowing man live and correct his ways. What other king would give and continue to give his servants the power to go against his will? Only Hashem is so kind to allow us the opportunity to repent. This also gives us a better understanding of the severity of our sins. Hashem gives us strength and life constantly even when we are sinning. How is it possible that at the exact moment He continuously gives us that we go against His Will? Is there a greater chutzpah? With this reality in mind it will hopefully heighten our awareness to the actions we take.

Shabbat Shalom,

Heath