Apple sources the time for all Apple Watches from 15 Stratum-1 level Network Time Servers around the globe.
Stratum-1 time servers are one step away from Stratum-0, which is the definition for a primary source such as an atomic clock. The time delay accuracy between a Stratum-1 server and Stratum-0 is typically less than 1 millisecond.
The Apple Watch acquires time information from Stratum-1 level servers, making time on the Apple Watch itself Stratum-2 level. Apple claims its watch diverges from Stratum-1 level accuracy by 50 milliseconds or less.