As stated in the release note, the update provides important security fixes and all the users should install the update. Here is Apple’s release note:
Available for: Apple Watch Series 3 and later
Impact: Processing maliciously crafted web content may lead to universal cross site scripting. Apple is aware of a report that this issue may have been actively exploited.
Description: This issue was addressed by improved management of object lifetimes.
CVE-2021-1879: Clement Lecigne of Google Threat Analysis Group and Billy Leonard of Google Threat Analysis Group
WatchOS 7.1 can be downloaded for free on compatible devices through the Watch app on the iPhone; tap on General and then go for Software Update.
To install the new software update, the Apple Watch needs to have at least 50 percent battery and should be placed on a charger within the range of the iPhone.