The administrator(the first person to add the watch to their App account) can control permission to add the watch.
This setting allows the administrator to permit or block anyone else from adding the watch to their account. For security we would advise keeping this in the off position and only turn it on while permitting someone to add the watch. Turn it off once they have successfully added the watch to their account.
This can be set in Family List, click on the Settings wheel icon and slide the button at Allow to add.