Bernita Harris, who always has something interesting to say, posted here about how it's important to come down out of the watch tower and interact directly with the people you're observing, on the level where they are. She said that the view from above is necessarily restricted and will never give a full and individual view of the people moving about below. I agree with that statement, but disagree that it's an either-or choice. I think the best people watching is done from a variety of perspectives, and that sticking with any single perspective, no matter how egalitarian, is inherently limiting.
Stand up, maybe leaning against a wall or a pillar, and watch people go by at their own level. See their faces and watch where they're looking, how their gaze moves around. What are they saying and to whom? How are they feeling, what are they thinking, what sort of person is that in there? These things show best from face level.
Sit on a bench and watch the people move around you. See how they're dressed, what they're carrying, where their bodies face in relation to where their faces are pointing. What do they carry and how do they hold it? Body language shows best from a bit of a distance and at "body level." What is this person projecting without being quite aware?
Sit on the ground and watch how people interact with the lowest level of their environment. Do they step on that flower in the grass or hop over it or swerve around it? Do they trip over a hole or a rock? Do they stand still or shift their weight from side to side or "fidget" with their feet? Do they interact with (or even notice) toddlers or dogs or a ball rolling by? What kind of shoes are they wearing, if any? Do the barefoot people move around differently than the folks in sandals and sneakers and that woman mincing across the grass in her spike heels? Watch the dime on the sidewalk and see who notices it, who stops to pick it up.
Lean over a balcony and watch the people moving around below. How do they move, where do they go, how do they react to the presence of others around them? Is there a main flow of traffic? What are the people outside that flow doing? How do people cross it or oppose it? When different people are talking to each other, do they face each other directly or at an angle or just sort of stand side-by-side as though they're pretending not to notice each other. How close do they stand -- what sense of personal space does each person have, and how does someone who wants more space react when someone who wants less walks right up into their face? All these things are much easier to observe from above.
A writer needs to observe people from all different perspectives. Restricting one's people watching to only one level, or any other single perspective, will restrict one's ability to recreate people from all around and all different levels. Be aware of the different levels and distances and points of view, yes, and use them all.