With an Apple Watch on watchOS 3 or later and a Mac running macOS Sierra or later, you can skip the login password.

Check you have using two-factor authentication turned on: iPhone settings > [Your name] > Password & Security

You need to be logged into the same iCloud account on Mac (System > iCloud) & Watch (Watch App > General > Apple ID)

Open System Preferences on your Mac > Security & Privacy and tick 'Allow your Apple Watch to unlock your Mac'

Your Mac will now auto unlock when you're nearby.