The Apple Watch isn't even square so they are scaled down to fit the smallest side of the rectangle.
There are pros and cons to both round and rectangular. Analogue watch faces are better suited to a round display and digital faces and messages work better with the rectangle but they all are still easily readable when used with either type of display.
I know it's not square, I just said square as it's easier to visualize a square "inside" a circle
Likewise, as you can appreciate, it's dead easy to create millions of digital layouts and designs that would look great, and some ever better on a circular display
On aspect I like about a circular display, that's not been done yet, is that, if done right (of course) the display on the screen could orientate itself correct to your eyes/angle of view no matter as what angle you were physically holding the watch.
I'm not pro or anti either shape.
I just think both have their own advantages.
Circular does allow for more creativity as we've been using squares and rectangles for decades for computers, simply because we could not realistically make a round one even if we wanted to.
I kind of like the idea of text, perhaps like reading an email, that could flow around the screen's circle, not using up an real screen space, perhaps start at the top, when it came to the bottom area, you could read it as it's flowing past, and then it dissapears as it reaches the top.
Like a scrolling message, but it scrolled around the circle to allow you to read a message.
I think that could look pretty cool if done well.
And simply, irrespective of anything else, and what anyone else here thinks.
Some people just much prefer a round watch face.