How do you know if a dog is well-engaged with the owner? I feel like my pup looks at the treats more than me!
The biggest sign of engagement is the pup is still with/on/ontop of you (not wandering off).
And when you get good at marking a behavior (and I have to use the clicker) FAST and clearly enough (using tons and tons of frequent treats) your pup will not only be with/on/ontop of you but offering behaviors with blazing speed (sit/down/sit/up/shake/sit/down/shake...).
Engagement is that the puppy wants to be with you and learning/playing WITH you more than anything else that may be going on in the big wide world around you! Once you have that focus and attention, you can do anything!
Specially if you are seeing it with NO leash and NO collar! The puppy is purely choosing to engage, when it could chose to leave.