Why do we have to watch body sensations separately by sitting meditation, when even in our daily life we are experiencing sensations moment to moment (and realizing everything is vibrating in our body)?
Generally what happens is: Body sensation > Perception > Concept formation > Thinking and pondering. Being mindful and aware you do not let this stream lead upto Thinking and Pondering which creates mental fabrication or mental Karma. Being ardently aware is what helps you cut this off before it comes to the last stage of creating Karma. This can also be thought as: Feeling > Craving (for perceived experience - perceive as good, bad or neutral) > Clinging (concepts and thoughts)
And can we achieve omniscience and knowledge of our past lives, karma, etc., by watching breath and watching body sensations only? Or there is more to it in vippasana meditations, other than watching breath and body sensations?
Genrally Vippasana is practiced to gain revolution towards the 5 aggregates. If you develop deep absorptions then yes you can gain insight to past lives and karma. Some Vippassana teachers teach in such away that both concentration and wisdom develops. Interpretations of the Jhanas by Leigh Brasington covers some teachers who teach in such a way, which can lead to absorptions which give psychic abilities (omniscience and knowledge ), as well as, insight.