>>Skin rashes can be red, inflamed, bumpy as well as dry, itchy or painful. The main cause is dermatitis, which is when your skin reacts to allergens or irritants. Bacteria, viruses, allergens and conditions including eczema, hives, and psoriasis can be the source of skin rashes.<<
https://my.clevelandclinic.org/health/diseases/17413-rashes-red-skin
My wife’s a retired nurse and I’ve shown a lot of the images posted here in the Apple Watch community. She always says “contact dermatitis.”
I can tell you wear you watch a lot because of the lighter skin. You might want to try switching bands frequently and wearing a couple that are breathable, rather than the silicone that traps moisture etc.