For the potato salad: Submerge the potatoes in a pot of cold, salted water. Bring to a boil over medium-high heat and cook until a fork or the tip of a knife can pierce through the potato without resistance, about 20 minutes. Remove from the heat, strain, and put the potatoes into a bowl of ice water to cool. (Potatoes are easier to peel when cooked and cooled.) With your hands, peel the skin off the potatoes. Cut the potato into eighths (or bite-sized pieces).
To cook the bacon, lay the strips flat in an even layer in a large, cold pan. Over low heat, cook the bacon slowly, turning occasionally to prevent burning, until the fat is rendered and the bacon is crispy, 8 to 10 minutes. Remove the bacon to a paper-towel lined plate to drain of excess fat.
For the dressing: In a blender, combine the basil, sour cream, mayonnaise, parsley, tarragon, garlic, lemon juice and 1/4 teaspoon salt and puree until the herbs are just flecks of green and the dressing has turned a pale green.
Toss the potatoes in a large bowl with 1 cup of the dressing, mixing thoroughly. It may seem wet at first, but the potatoes will soak up the dressing in a matter of minutes. Reserve the remaining dressing for another use. Add the watercress, walnuts and shallot. Lightly toss to combine. Crumble the bacon over the potato salad, and finish with fresh black pepper.