The biggest difference is that Version 3 can have its own data plan. You don't have to be tied to your phone any longer. So you can make calls, take and make text messages, etc - all without your phone.
I didn't opt to do that because I didn't want an additional data plan… I know it's not that much more but - jeepers - we already have 5 phones and 2 iPads with plans. Plus I still feel a bit foolish talking to my watch.
This watch is a little smaller than my old one but not by a lot. It does a better job of health related things - keeps great track of heart rates and things like that. I used to have my old watch on the Modular face - told me the date, I could see my calendar, the time where I am and the time in HI, the weather, and my fitness data. Because this is the Hermes watch - I left it on the Hermes face (tho I did change the numbers to a more 'standard' font) because Mr Cookie paid a bit for that! But with the new watch, all I have to do is press the button next to the red round one on the right hand side and it shows me my last 8 used apps! So I can still easily see my calendar, the weather, my fitness and or heart rate, and the timer (which I use a lot!).
It does a better job with phone calls and text messages too and seems to be really good at voice to text.
https://www.apple.com/watch/compare/