Does Apple Watch have a light sensor for an auto dimming display? If so, that can be used as a proxy for indoor/outdoor. It isn't great, shade and such. Throw barometer in there, and you can do a decent job.
Microsoft Band had a UV sensor, so we were able to get pretty accurate detection of indoor/outdoor when combined with all the other sensors, at least during the day. I'm sad UV sensors didn't take off on smart watches in general, it is a super useful sensor to have, but they are rather large and even the lens material to go over them is different than what is otherwise required for a wearable.
Then, you still have to account for the fact that your thermometer is located right next to a variable ~100W heater, vs. normal weather stations that are normally located away from heat sources. Also, the thermometer and heater are occasionally placed inside a tight-fitting insulated container.
Maybe they are they next to a window or under a sky light.
> or if they could use location data to figure out that 'this Apple Watch is in the middle of a large field, so he must be outside'.
Could be in a tent or other temporary structure.
Don't talk like that, its a self defeating mindset. You are likely as competent as most Apple engineers (the 10x benefit from less inhibitions and tons of energy.
The people working at apple are like most of us here, curious and driven. Apple has a lot of money to throw at people who bring in experience whereas you and I are individuals who do not work in the field of "figuring out where things are using computers." So we obviously are not experts in the field and not familiar with existing and emerging solutions for the problem.