To what extent does emotion clarify knowledge in the Arts?

          I can't speak for all the arts (I can't paint or act for my life), but at least in music, emotion clarifies knowledge by guiding the player of the piece to create, and know a message.  Emotions (hopefully) also allows the listener to receive and understand that message, and maybe make their own story off of the art.
         
         For the artist, in this case, the instrument player or singer, knowing the context that the composer wrote in, the emotions they may have been feeling, helps form an idea as to what the compose perhaps intended to be converyed through their work.  For example, Shostakovich's String Quartet No.8 was dedicated to the "victims of facism and war."  Shostakovich had also just found out he had Amyotrophic Laterol Sclerosis (ALS), and reluctantly joined the communist party of the USSR (with which he had a difficult relationship).  Realizing the emotions he must have felt (Fear, sadness, maybe anger) helps clarify for the player how they should play the music.  With the first movement, there's supposed to be an auro of eeriness and sadness, a sense that something bad has just happen, with perhaps worse to come.  In the third movement, there are several points where there are suddent, harsh, discordant chords.  These are supposed to represent his fear that the KGB would come knocking on his door to take him away.  Knowing of the fear, these chords are loud, ferocious, and heavy, representing a power to be terrified of.   There are guides within the music (dynamics, tempo, stylistic markings) as well, but empathizing with the emotions adds to the musicality of the piece, making it so much more than just the notes.

         If the players can pull it off, the audience uses the emotions they feel to either create their own story, or (if they, like the players, know the context) color the story they have heard.  Sometimes the emotions can come back to the composer and clarify their own knowledge of their piece.  To use Shostakovich and String Quartet No. 8: Apparently, in 1962, the Borodin String Quartet performed this for Shostakovich, hoping he would provide some criticism.  Instead, he was so overwhelmed by the realization of his most personal feelings, he buried his head in his hands and wept.

How does the act of observation influence what is observed?

It depends on how the observation is being conducted. If the observer stays hidden, or the object to be observed is simply unaware, then the influence on the observed will probably be non-existent.  Afterall, one cannot react to something they don't realize is happening.

     If something realizes it's being observed, the change is often instantaneous,especially in unexpected cases.  For example, with animals, if someone makes an unexpected noise too close to them, they immeadiately fly off.  With people, they might immeadiately stop what they're doing, and also possibly run away, especially if they don't know the person.  In Sleeping Beauty, specifically in teh segment where Aurora sings "Once Upon a Dream," she both immeadiately stops what she's doing, and tries to run away upon realizing she's not alone.  (Going on a unnecessary tangent, she's terrible at running away, she just hesitates a few steps further, and it's far too easy for Prince Phillip to catch up.)

     When people expect to be observed, they change, usually to be what they think the observer expects. It can actually be a problem in Psychology experiments, as (at least now), people have to be told they're in an experiment, and people often are influenced by what they hear.  Smith, Bell, and Fusco tested two groups of men in 1986, and told one group that seeing the color pink increases their strength, and another group was told it increased their strength.  Those who were told it would increased their strength showed they had a 10% stronger grip on a dumbell then those told they would be weaker.  Even if they aren't told, the people being observed can often guess, as the observer can send cues that tell the participant what is expected of them, and what the observer hopes to see.  This is defined as demand characteristics, according to Martin Orne.

       Knowing once something knows it's being observed, everything the observer sees needs to be questioned.  The act of observation causes the observed to put up walls, whether physical walls, such as fleeing to put physical space between them, or Aurora's attempt to use a tree trunk as a wall between her and Prince Phillip (seriously, if she was going to use a tree, she should have found a bigger tree further from him...). With animals, the observer now has to wonder, how fast does it normally go along? Where does it usually spend most of its time?  With Prince Phillip, he now has to wonder, does she usually sing to animals?  Is Aurora usually so coy?  Is her main mode of transportation dancing?

         Or, especially with people, the observed puts up mental walls, using societies rules to put out what's expected of them.  Sometimes that influence is a good one.  People who are aware of cameras that are watching and recording their every move in a store are less likely to steal, because they know they'll probably be recognized, caught, and brought to justice.  But it can also be a bad thing, limiting people's true selves because they're afraid of what people will think if they see.