Update to watchOS 7.1, as it has a fix for unlocking Macs
If that does not work, it should, but if it does not work, then read the following threads
Check out this thread on fixing Apple Watch unlocking Mac
https://discussions.apple.com/thread/251803595?answerId=253458029022#253458029022
Then follow with this thread
https://discussions.apple.com/thread/251826134?answerId=253504359022#253504359022
And
I also found that it took awhile for the iCloud Keychain records to propagate and merge on all the systems. More so when you have multiple devices sharing the keychain (I have 4 Macs, the iPhone, and the Apple Watch). I followed both of the above threads, but it was not reliably working until the next day, when I tried again. And I did have to click the enable check box twice the next day, but then it stuck.
And this thread says they also had to toggle the Apple Watch -> Settings -> Siri -> Listen for "Hey Siri" option off then on
https://discussions.apple.com/thread/251803595?answerId=253782332022#253782332022
Hints (you will understand when you read the first and second threads):
Applications -> Utilities -> Keychain Access
Finder -> Go menu -> ~/Library/Sharing/AutoUnlock
System Preferences -> iCloud -> Keychain