"The watch is in the wallet."
Translation:L'orologio è nel portafoglio.
Nel is the contraction of in+il, nello of in+lo, so just apply the familiar rules for the choice of the determinate article; you can find a complete chart of the mandatory contractions at http://italian.about.com/library/fare/blfare153a.htm (there are also some optional ones with con).
Most keyboards can be configured to have accents. Or to be able to access them fairly easily. I can access them both on my Windows machine (using the international keyboard) and my Mac. Slightly different combos for both which can be tricky but doable. But yes, there are ways you can do it on site I think.
"l" or l' ? L with an apostrophe is used for both masculine and feminine nouns that begin with a vowel http://italian.about.com/library/fare/blfare110a.htm for details.
The watch is in the wallet..I said "l'orologio e nel portofoglio" (which I think should be correct), but am corrected by duolingo with "nel portofogli" which if it were asking for wallets should be "nei portofogli", but it says wallet (singular), which should be "nel portofoglio"
"Nel" is used in the same cases when you use the definite article "il". And "nello" when you can use "lo". Samples: Il mare -> nel mare, il sole -> nel sole, lo zoo -> nello zoo, lo studio -> nello studio, la casa -> nella casa. For the rule: http://parliamoitaliano.altervista.org/larticolo/