It uses both Bluetooth LE 4.0 AND 802.11ac WiFi.
Bluetooth is used to discover the Apple Watch and establish a connection.
Then it uses WiFi to do "time-in-flight" calculations - i.e. to figure out how far your watch is from the Mac. The Mac needs to support 802.11ac WiFi for this to work. All watches are supported, both the old and the new - even though the old ones does not support 802.11ac.
This way it is possible to prevent attacks such as someone planting a "bluetooth repeater" near you, so that it could replay your bluetooth responses captured this way to a Mac located somewhere remotely.