Hey Sapiafi,
This issue is due to the AppleWatch only has 2.4Ghz WiFi capability. As most wireless networks use both 2.4Ghz and 5Ghz in tandem, some networks divide the two connections or only provide 5 Ghz. (For example, some internet router-modems provide 2.5Ghz and 5Ghz as separate SSIDs, being separate connections).
There are two work arounds to this issue:
1. Change to 2.4Ghz Network.
If possible, connect only to your 2.4 Ghz band on your WiFi connection. This can be done by connecting to the non-"5G" connection on your WiFi, or disabling the 5Ghz antennae on your router. You must also forget your 5Ghz network, and reconnect to the 2.4Ghz band.
After this is done, restart your iPhone and AppleWatch. This will refresh the WiFi setting on the Apple Watch to be on the 2.4Ghz connection as the Watch mimics the WiFi connection settings of the iPhone.
The update should successfully install on the AppleWatch (granted the watch has 50% charge and is plugged in).
2. Unpair and Re-pair the AppleWatch
After downloading and unsuccessfully installing the AppleWatch update in the Watch app, proceed to unpair and re-pair the AppleWatch to the host iPhone.
This can be done by following these steps:
1. From the main menu of the Watch app, tap the image of the AppleWatch at the top of the menu.
2. In the following menu, tap the small circle containing an "i" within it.
3. In the following menu, choose "Unpair Apple Watch", and follow the unpair proccess.
During the unpair process, the AppleWatch will backup to the host iPhone and erase the watch. During the new setup of the AppleWatch after selecting the backup, during the sync process the AppleWatch will update from the update contained on the host iPhone.
Wallah!
Your AppleWatch should be updated after either work around.
Hope this helped,
-Tom