Despite a determined first half with a potential opening for Juraj Kucka, Liverpool took advantage of Watford's missed opportunities as Diogo Jota headed the Reds in front before the break.
The Hornets remained buoyed by their positive start after the interval and came close to equalising through João Pedro, but Fabinho lashed a penalty past Ben Foster in the final moments to secure a home win.
The 74-year-old was pleased with what he saw from his side against one of the title challengers in the Premier League.
“There was a lot to admire with the performance," said Hodgson. “I'm very pleased with the players' performance. I don't think we could've done much more today.
“Their goal came after one of our best chances, that's why they are a top club and why we are unfortunately in the bottom three. That sort of quality is what you are dealing with – a wonderful cross from [Joe] Gomez and [Diogo] Jota timed his run perfectly. There are no good goals to concede.
“I'm also a little bit sad about the penalty decision at the end through VAR because there was no appeal from any Liverpool player for a penalty. Jürgen [Klopp] and I had no idea what they were checking or what they were doing.
“I don't think that's what VAR is about because it's done some good things this season. As much as I'm frustrated about the penalty, that won't change my view on it being a good team performance today."
Hodgson felt Watford's efforts merited at least a goal, citing the two chances that could have had a significant impact on the outcome of the encounter.
“In my opinion, I thought we did a good job of keeping Liverpool at bay," he said. “They didn't find it easy to cut through us. They weren't peppering our goal with shots and our goalkeeper wasn't needed to make save after save.
“On occasions, we created some chances of our own but if you want to get a result up here, we needed one of our two clear chances – the one with Kucka and the one with João Pedro – to go in. If they don't, you know there aren't going to be an amazing number of chances coming your way afterwards. You have to fight so hard for them.
“There is no doubt today wasn't a walk in the park for Liverpool, they had to fight and do all the things they are very good at in order to get the result. We can consider ourselves a little bit unfortunate that some of the work we did, didn't result in coming away with anything from the game."
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