I'm also having issues with my Apple Watch S3 LTE with unlocking my 2014 5K iMac. It worked initially, and now it just doesn't work at all. When I move my mouse to wake up the Mac, I get a spinning loading symbol thingy for a few seconds, and then the password prompt.
No idea why. I had this happen a few days ago and a combination of reboots and checking/unchecking the option in System Preferences eventually prompted me for my system password and then it was working. But now, a few days later, back to not working again.
*EDIT*
Unchecked the option in System Prefs on my iMac, rebooted my S3 and rebooted my iMac. And now after re-checking the option, it now works again. Even says "Unlocking with Apple Watch" and it does a second later.
Weird, - clearly something funky going on with either High Sierra or High Sierra + Apple Watch.