iCloud Photo Library already defaults to storing only size-optimized copies of photos on devices. For instance, your iPhone will store only relatively tiny images compared to your iPad or Mac. The Watch will default to only downloading extremely low-resolution versions of your images, around 500x500 pixels, I'm guessing. It's already seamless on all devices.
No, thats not how it works. It will download thumbnails of your photos then grab actual size versions to fit the screen as needed. It will also keep (onboard) near full sized versions of images that you favorite.