The Apple Watch knows that it's you, or at least somebody that knows your PIN.
It's tied to your iPhone and Apple account during initial setup.
Each time you put the Apple Watch on, you have to enter your PIN to unlock it. It can only perform automatic unlocking of your Mac and iPhone in this unlocked state.
The watch does automatic wrist detection and it will automatically RE-lock itself as soon as you take it off.
This is reasonably secure for most needs, though of course you can disable all of this automatic unlocking if you want more security. I forget if it's on by default or not. IIRC I had to enable it but I'm not too sure.
I'm not sure that "PIN + hardware dongle that requires continuous skin contact" is meaningfully less secure than a fingerprint sensor, but at least Apple puts you in the driver's seat to choose the level you're most comfortable with.
I've found the Bluetooth connectivity quite reliable. When it doesn't work, it's because the watch re-locked itself.
It's tied to your iPhone and Apple account during initial setup.
Each time you put the Apple Watch on, you have to enter your PIN to unlock it. It can only perform automatic unlocking of your Mac and iPhone in this unlocked state.
The watch does automatic wrist detection and it will automatically RE-lock itself as soon as you take it off.
This is reasonably secure for most needs, though of course you can disable all of this automatic unlocking if you want more security. I forget if it's on by default or not. IIRC I had to enable it but I'm not too sure.