According to Garmin -

“The Temperature widget will display the ambient air temperature near the barometric altimeter port. This reading can be affected by body heat. To get the most accurate temperature reading, remove the watch from your wrist, place it on a temperature neutral surface, and wait 10 minutes or more.”

As another user stated, a smartwatch also runs a lot cooler even than an otherwise idle smartphone. It also spends time on your arm as opposed to in your pocket which helps it cool.