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According to the user guide it is used to "unlock Apple Watch by entering your iPhone passcode on iPhone."
 
When you first put the watch on you can either input your 4 digit passcode or if you have your phone in your hand just unlocking your phone also unlocks the watch
 
Your :apple:Watch is locked with a 4 digit passcode. Then when you put the watch on, you can either enter your passcode, you unlock your iPhone. Your :apple:Watch is then unlocked until you remove it from your wrist, when it is then locked again.
 
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