Thats because it is updating the app on the watch to match the phone. Thats perfectly normal. Otherwise you have no way of updating the app on the watch after its been updated on the phone.
This, and the app writers might change things on the phone app which need a change in the watch app to work correctly.
Let's get a few things straight:
- AW app on iPhone -> General -> App Install -> Automatic App Install set to "Off": This means that as you install new apps on your iPhone, they should not automatically install themselves on the AW. This should also apply to iPhone apps which received updates to include brand new compatibility with the AW.
- AW app on iPhone -> any app -> Show App On Apple Watch set to "On": The app, being AW compatible, should be appearing on the AW, and it should automatically update if the app is updated.
I think the OP is misunderstanding which setting does what. The first setting, when "Off", prevents your AW from getting cluttered with random apps as they're installed or updated on the iPhone. The second setting, when "On", is how you install an app onto the AW, and it also ensures the AW app is updated each time its iPhone app gets updated.
Also, apps which aren't installed on the AW at the moment would still be updated, although you wouldn't know how they changed until you install them onto the AW. For example, my iPhone's NY Times app has surely seen some updates, but I haven't had its AW app installed on the AW in months; so I don't know what, if anything, has changed on the AW app.