You have to "break" a journey at Euston because there are gates to
exit the overground before you can enter the underground.

That's an out of station interchange - so it counts as one single
journey. To really break the journey into two separate bits it might be
necessary to use two oysters (and lose the cap), wait long enough (how
long?) or add a short bus journey (if it's covered by the cap). All not
very good.

So if you travelled at 9.31am, Watford Junction to Moorgate you'd be
offpeak for this journey for the overground bit but peak for the
underground bit.
Presumably you'll be charged two singles 3.00 + 1.50 for a total of
4.50
But if you travelled at 9.29 you'd be charged one WJ-Z1 single for
6.00

I think they will always charge for WJ-Z1.