These days (and probably forever going forward) altimeter watches either use GPS or barometric pressure to figure out your altitude.
I’ll discuss the specifics of each type of altimeter watch in the next few paragraphs. To summarize the difference between the two, GPS altimeter watches use map datum based on position (this position is communicated to a satellite). The majority of barometric altimeter watches use air pressure to determine altitude. This is the original method (by original, the initially discovered method) and the most common method for a watch to determine elevation.
If your altimeter watch is GPS enabled, the way it calculates altitude is by sending your latitude and longitude to a satellite, which likely communicates with the manufacturer and returns your altitude, among a number of other data points. Because of this GPS altimeter watches are considered to be more accurate that their barometric watch counterparts. Not having to recalibrate is one of the obvious benefits to owning a GPS enabled altimeter watch. However, one of the downsides is your position and altitude is often subject to terrain – on flat, open terrain you will have near perfect communication with the satellite. However, in mountainous terrain, particularly in a canyon or gorge, you will often have poor satellite signal, resulting in inaccurate latitude and longitude positioning. Obviously, this results in somewhat questionable accuracy of your elevation. Examples of GPS enable altimeter watches are the Forerunner 305 or the Suunto X10.