I assume there were many more trees in the same watershed before man chopped them down for pasture and cities.

Sure, but there was a lot more available water in the watershed then also. Agriculture in a lot of ways has been the biggest ecological disaster this planet has ever seen. Man has redirected and pushed water out of nearly every watershed on the planet vastly changing what biome a area can support. I say that fully aware of the benefits that Agriculture has allowed human society, I wouldn't change it if I could in the past but I deeply hope we figure out a way to co-exist with nature in a less destructive way.

We need to switch to just growing our plant food indoors, using hydroponics. It's much more efficient with water than outdoor irrigation, and can be done vertically so it doesn't take up so much land.

Yes, and they burned quite readily and frequently without harming humans. But humans have this peculiar aversion to dying in a fire, and they use tons of groundwater for themselves and for irrigation as well.

How is wildfire automatically a bigger threat with more trees? Is it because with more trees given the same quantity of water, the drier wood helps the fire spreads more quickly? Or perhaps the forest is more densely populated? But that doesn't increase the vulnerable area. Pardon my ignorance, I'd like to know more.

When there's not enough water for trees to survive, they die and dry out. Dry brush and trees catch fire more readily and burn better.