Suddenly there is a rumour circulating around the Internet, saying Apple is designing an "iWatch" and this rumour has been confirmed by a few credible sources including Bloomberg. As expected, Apple hasn't responded to any of these external claims. However, it is very plausible that Apple would be working on such a product.
Strategically, Apple needs to enhance its existing ecosystem. The current iOS ecosystem has been great so far, but it could be improved further by introducing new product lines to tap new market segmentation. Probably inspired by previous generation of iPod Nano and Nike's fuel band, iWatch would be something with 'cool' factor, just like Google's unreleased Google Glasses. It doesn't have to be that much useful, instead, it will be something that geeks or Apple fans would want to have.
Here I am taking a few guesses on Apple's smart watch's features.
First, it will not run an iOS but will definitely has a deep integration with iOS system. I said this because considering the form factor, it just takes too much effort to customize iOS into a much smaller screen. Most likely it will be an extension or add-on accessory to the current iOS devices. The connection could be through Bluetooth or WiFi. You may read text messages, get reminders and calendar alerts, control music playback from iWatch, without taking iPhone or iPad out.
Second, it is very likely to feature Nike+ integration as it is already part of the iOS functions. With the Nike+ integrated, gym enthusiasts can closely monitor their exercise performance from their watches. It could even be working just like Nike's fuelband that estimates one's daily energy consumption through movement of the watch.
iWatch may feature voice control as well. But I don't really think it would be Siri since it is very power consuming and requires Internet connection. Speaking of power consumption, battery power is definitely something that Apple would like to pay attention to. Nobody would expect to charge their watch every 8 hours or so.
It is still too early to say how the 'iWatch' will turn to be like, but it'll definitely hit the headline once it's out. Let's sit back and wait to be surprised.