It does restore everything, I think technically the apps are re-installed from the App Store, instead of being part of a backup, their data is restored though.
It will walk you though everything. If you have any Apple Pay cards, you'll have to re-authorize, maybe with the code from the back, but you won't have to re-enter the card numbers.
I usually upgrade every couple years, and don't think I've started from new on any of the 4 or 5 watches I've owned. and not had any problems.