Basically, you watch the bowler's head (approximately, but without real focus) as he is running in, and then fiercely watch the ball out of the hand once his bowling arm appears by his head.
Against pace, the ball is moving too quick to track the whole way.
If the ball disappears immediately out of your direct line of vision, then you know its short, so you step back and immediately look down to roughly where its going to land, and then try to pick it up again and track it briefly from after it bounces - this should give you just about enough information on the height and pace of the bounce to be able to play a back foot shot.
If the ball doesn't disappear but instead stays in your direct field of vision, then you know its full, so you step forward, whilst tracking it for as long as possible, picking up any shape through the air. At some point, normally about 6 foot in front of you, it will effectively disappear, but hopefully you've gathered enough information for your bat to come through in roughly the right place.
When batting against spin, you can pretty much track the ball the whole way. The key here is not to move until you've accurately judged exactly where the ball is going to land, and then move positively and decisively into position.