Watahiko appears in episode 21, "Cotton Changeling." Watahiko was born to Aki and Yasuke as a strange green goo. When it vanished, a baby was found in its place after some time. Then another, and another... all identical, all named "Watahiko."
He is actually a form of fungal mushi that once inside the body of a pregnant woman, kills the embryo and takes it's place. Then after it escapes at birth forms a base near the home it was born and creates children to gather energy for itself, almost like plant roots. All the children of the base mushi share a hive mind, when one learns something they all do. They grow at an extremely quick rate, almost as fast as bamboo. Even the infant stage children who share the hive mind can communicate as the older ones do. At a certain time in their life span the children get sick and then release spores which grow into more of the base type of fungal mushi. If exsposed to fire the base will change forms and the children will vanish.