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 802.11ac WiFi to do "time-in-flight" calculations - i.e. to figure out how far your watch is from the Mac.

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.