So after deliberation I’ve decided to write a succinct guide for playing Spy in Highlander. Generally speaking, this guide is aimed at spies rather new to the competitive scene, to make them aware of the various jobs the spy must do to fulfil his class’s potential. The guide is supposed to be written as objectively as possible, but naturally some personal opinions are going to eke their way in. I'm bound to have forgotten a bunch of stuff, so any feedback would be greatly appreciated, and if there’re any responses which I feel are particularly useful, I’ll incorporate them here with full credit.
So without further ado…

Ok so of course I am aware of the significant contribution to the Spy class made by Watsyurdeal? (a.k.a. TheSentryisaSpy). His videos sum a vast encyclopaedia detailing the ins-and-outs of the role of the Spy, so for those of you that haven’t seen them (which, let’s face it, is probably no-one) I’d highly recommend them. Here, however, I thought I’d describe a more Highlander-oriented Spy role.
In a nutshell, the aim of the Highlander Spy is to cause as much disruption and inefficiency among the enemy ranks as possible, while simultaneously safeguarding your team against major threats. This safeguarding splits into two distinct categories: Communication and Priorities.

The Spy has a completely unique view of the battlefield; the majority of your time will be spent behind the enemy lines. From this vantage point you can view the intricate details of your opponents’ set-up. This insight must be taken advantage of: It is vital that the positions of the Combo are called, and when you glimpse the Medic the percentage of his Über is relayed to your team. A lot of Spies also forget to regularly check whether the opponent Medic is running Kritz or Über. If your team dies to a surprise Kritz, it’s the Spy’s fault. The positions of the Sentry and Sniper are also highly important. A lot of the Spy’s work is communicating with his/her team, so use that mic!

Stating the obvious: you have a knife which insta-kills. This means if played correctly you have the ability to topple your opponents’ most powerful asset. Generally, the entire game revolves around the Übercharge. If you can drop the Medic, then it’s going to be at least 40 seconds before they have an Über again, without factoring in respawn and slower-charge times. It’s pretty clear here that the Medic is usually your top priority. Of course, it is naïve to assume that you’re going to be able to drop the Medic ad infinitum, so aiming for the heavy classes (I’m just thinking of the Heavy and Demo here) will also squash their potential to wreak havoc with an Über.
A lot of teams let their Snipers duke it out in 1v1 and tell their Spy to focus on the combo. However, if you can pick off their Sniper often enough, your own Sniper is going to have free reign over a lot of space to shut down a lot of your enemy’s options. This advantage is often under-estimated.
When attacking the final point of a map, the opponent’s Sentry can offer a formidable defence (just think of Upwards’s last point). It’s a common misconception that it’s always a Spy’s job to take down Sentries. In this situation, however, a Sentry destruction would allow your team to focus on the enemy combo with dramatically reduced external pressure. A useful tactic is to try and synchronise the sapping of a sentry with your team’s Combo push to quickly destroy the Sentry.
A key factor in a team’s efficiency is its mobility. A simple teleport destruction can severely hinder your opponent’s movement, making them lose a lot of time on the clock. Remember, on Payload, it’s ALL about the clock.

Keeping the team unsure of your location and your plan is important. Simple tricks such as using friendly disguises (especially with the Dead Ringer), or quick double-feigns (where possible) can sometimes make the opposing team relay false information. It’s also beneficial if you rotate disguises instead of sticking to one continuous disguise.

So that’s all very well and good: you’re now a walking, talking Spy who knows who to stab, but naturally putting this into practice is far from simple: You’re not going to be able to take down the top priorities all of the time. A mistake so many Spies make is their impatience: they aim for the Medic with great aplomb, only to be burned and rejected by the enemy Pyro. Learning nothing, this process is repeated ad nauseam until all that’s happened is a lot of wasted time. This “suicide spy” mantra is grossly inefficient; you need to maximise your potential.
Hence, knowing the status of the opposing Pyro is of great importance. It is generally a good idea to aim for the key threats to your team that their Pyro isn’t guarding, and when you want a juicy combo-pick observe when the Pyro is engrossed in something else and strike. But as my friend Arctic pointed out, you don't have to wait for the God's of Chance to distract the Pyro: telling your team to spam projectiles at the Medic or Sentry is a great way to induce the Pyro into projectile-reflecting. As soon as you hear that their Pyro is down you want to manoeuvre yourself into a position that will give you a great chance of getting a lovely Medic stab. Once when speaking with Hurri, he said that he seemed to find teams became sloppy at spy checking when they were organising a push. That window of just a few seconds should be all you need to punish their unawareness.
Now the above segment was rather passively written; a lot of the time you can still attack whilst the Pyro is spychecking. I spoke to Fearboy on the matter and he made the excellent point: Walls are your friends. Some spies hide behind walls and use this more than their cloak to ascertain the position of the enemy Pyro. By listening to the sound of his/her flames it is possible to locate exactly where he/she is. As soon as the Pyro steps a little too far in the wrong direction, you have your chance. Sometimes full-on aggression is the only solution; there will be times when you know their Medic has full/almost full Übercharge and needs to be neutralised. Although you will be forced to enter into a risky scenario, the potential of the Über is worth more than your life.

To summarise: you are a support class, run to cause disharmony amongst the enemy. In getting key picks, you’re probably going to die quite often, but your K/D ratio is to not at all be regarded: so long as you’re disrupting their team and neutralising threats you’re doing your job correctly. Of course, TF2 is very situational. You yourself will have to figure out the required compromises between aggression and pacifism: You don't want to be too passive in that you're inactive, but you don't want to be too aggressive in that you're constantly dead. Each situation will require a differing amount of aggression, and it will change every match. Naturally, if your team is stomping the other, then you can afford to be aggressive without much thought. If however you're finding yourselves losing, your approach will require many considerations. It's these considerations, knowing how to attack in any situation, that make the godliest Spies.

Payload
Attack
Pushing the cart is a task that is normally left to the scout +1 (most often the engineer). There are however situations whereby a Spy will be able to sneakily push the cart a small but crucial distance when the opponents are otherwise occupied, so always keep an eye on the enemy’s movements. One of the opponent’s main assets will be their Level 3 Sentry, so it’s crucial to coordinate a sapping with the push of your team. Once their Engineer goes down at the first point, a valid tactic is to try and keep him completely shut down for the rest of the game, destroying everything he tries to build. Other than that, it’s pretty standard requirements: try and get key picks that will limit their defensive resources.

Defence
At the beginning of the round, you should not concern yourself with the cart. If you manage to pick the scout, but die, you’ve effectively achieved nothing as their respawn times will be shorter, and they’ll have others to push on the cart. After the set-up time has elapsed, you’re required to stop that Über push. Communicate exactly which door they’re pushing from and try your very best to nab one of the Combo. I’ll add that the set-up time does allow you to get into a nice position with the Cloak and Dagger. Payload maps really are a wonderful place for the Spy to get to work, as there are so many spots which are safe to decloak, and so much metal that you have many different options available in deciding how to taking their team down. Make sure you destroy the Teleporters, forcing them to walk all the way to the cart and gaining valuable time. Medic picks, of course, will gain your team an incredible amount of time (assuming your Medic doesn’t die).

5CP
These maps tend to arrive at many a stalemate (consider Granary and Foundry) with equally-matched teams. The stand-off situations which arise mean that the opponents will have more watchful eyes on their key assets. Hence, you and your speed of approach will generally be slowed. You’re going to run into difficulties here if you can only use the Dead Ringer; once equilibrium has been established, it will be very tricky to infiltrate undetected. The generally slow-pace of the matches means that the Cloak and Dagger can be very effective, if only for observational purposes: if you see an opponent (e.g. Sniper) trying to peak, you must tell your team immediately which choke-point to spam to punish over-extension. Plenty of consideration will have to go into your plan of action, as getting a key pick will allow your team to push through to the next point. A very passive but sometimes effective style of play is to camp a blind spot with the Cloak and Dagger, and wait for the opposing team to push closer to you. This will not be to everyone’s taste, however.
A nice feature of 5CP maps is the excellent chance you will have to spawn camp specific players, a perfectly valid tactic to keep one of their assets shut down. Always note the exact positioning of their team, as an over-extended team can fall flat to a sneaky Spy cap in the right circumstances.

KOTH
In order to play king of the hill, you must learn the particular spots in which it’s safe to decloak. On KOTH these decloak spots are very rarely occupied, unlike the ever-changing positions of teams on 5CP. Particular spots that come to mind are the house on Viaduct, or between the pillars on Lakeside. I don’t think the Cloak and Dagger really makes an appearance on these maps; it seems more suited for 5CP style play, but feel free to correct me here.
Snipers have excellent sightlines on these maps, so a crucial aim is the neutralisation of the opposing Sniper. Not only will this give your team more room to breathe, but your own team’s Sniper can then acquire excellent vantage points worry-free.
It can be tricky to secure a stab on the Combo before they start a push, so stalking the high ground is a very useful way to survey the battlefield and drop down when the time is right. I personally believe that the Diamondback can really come into its own here; take down a minisentry or two and you can severely intimidate the enemy Medic.
It's necessary to keep an eye on the cloak, you may occasionally be called to solo cap a point, (but lurking behind enemy lines is your primary goal).

Now I’m going to focus on the tools in your arsenal which will bring about this disruption. There are countless threads detailing to death the specifications of every Spy weapon, and I’m not going to make you read another Spy’s opinion on the Revolver/Ambassador “Debate” for the umpteenth time. This section will just briefly and objectively state the relative merits of the weapons in a Highlander scenario.

Guns
There are plenty of different gun options available to the Spy. It’s mostly just a matter of taste.

Revolver
A powerhouse of a gun, it packs a lot of damage at close range and can easily pick off many weak targets rapidly. Basically useless at firing long distances

Ambassador
If you can consistently get headshots, then this weapon is for you. If you can’t aim very well, stick to the Revolver. The nice thing about the Amby is its ability to fire long distances.

Diamondback
Certainly viable in Highlander. I’d like someone to write a larger review for this- an appraisal would be appreciated- but I believe that this weapon can be beautifully used on Koth maps, or others where the Engineer spams out minisentries.

L’Entranger
Pointless.

Enforcer
Banned.

Sappers

Red-Tape Recorder
Banned.

Standard Sapper
Your only option!

Knives

Stock Knife
The most flexible knife in Highlander. Does what it says on the tin.

Kunai
The reward of kunai comes after the stab and the point of spy is getting a good stab, not surviving after it.

Your Eternal Reward
Could possibly be used for 1 life in an attempt to get a sneaky chainstab with the reduced sound but overall you're better off picking another knife.

Spycicle
The only other knife you’ll use besides the Stock. Let’s you get away from Pyros rather easily. A Spy known as Evan (on youtube “stingcandy”) has made some interesting videos on why he believes the metagame of the spy is evolving to Revolver+Spycicle+Dead Ringer. Well worth watching.

Big Earner
Pointless.

Watches
The nice thing about the Spy is that every watch is viable in Highlander, and your choice of watch will highly depend upon the situation your team is in.

Invisibility Watch
A very useful and flexible watch, you can get to where you want to be undetected.

Cloak and Dagger
In stark contrast to Pubs, this watch is incredibly useful in Highlander. Just by sitting in useful spots you can relay vital information to your team and slowly shift into a good position.

Dead Ringer
Often over-used, but incredibly powerful. I’ve personally found this watch to be much more viable on Payload than 5cp.

I do not agree with some parts of this guide, I merely transferred this from pinkrabbit's forum post from 2012.

His profile: http://steamproxy.net/id/ttttttttt5554h4h4h/
His original guide: http://forums.steampowered.com/forums/showthread.php?t=2969399