To begin, open the Photos app on your iPhone and select the "Recents" albums.

Tap on the photo you want as your Apple Watch wallpaper, and then tap on the heart icon at the bottom to flag it as a "Favorite."

By default, your Apple Watch syncs photos from your Favorites. If you changed it to a different album, be sure to add the photo to that album in the Photos app instead.

If you want your Apple Watch to cycle through different photos as your wallpaper (instead of showing just a single photo), you can Favorite as many photos as you want.