Watson's secret sauce is IBM's Deep Question-Answering (QA), a technology the company describes as a massively parallel, probabilistic, evidence-based architecture. That is quite a mouthful, but, basically, a large number of natural language processing, information retrieval mechanisms, and machine learning and reasoning algorithms work together in concert. This is very much a deep analytics process and no single algorithm is sufficient. (Deep QA uses about 100 now.)
For any single question, hundreds of sources may be examined and thousands of possible answers generated. Potentially tens of thousands of pieces of evidence have to go through a hypothesis and evidence scoring process. A synthesis takes place (after all, massive parallelism is employed) that leads to final confidence merging and ranking in order to deliver a final answer with the greatest confidence possible.
No, Watson was not designed to pass the Turing test, and it is nowhere near sentient (at least, no one thinks so). Moreover, human intelligence still maintains preeminence in such domains as musical and artistic expression, as well as in imaginationl. Moreover, Watson is not the next big thing in the sense of a commercially available product that has everyone agog and generates billions of dollars of revenues. And it is not likely to be the next big thing on the Internet (although making Watson-like capabilities available online is a real possibility for IBM). So, if you can't buy it yet or use it yet, how can it affect your life?
IBM plans to turn to vertical industries, and a "Dr. Watson" for the health care field is likely to be the first commercial instance of the technology. The purpose would be to complement a physician by helping examine all the evidence (such as from medical journals and medical images) for a patient to form a broader, deeper perspective. For example, Dr. Watson could examine evidence outside of a specialist's area of knowledge that may apply to the patient. IBM believes that a Dr. Watson could save lives and that seems very likely the case.
In any event, IBM seems most comfortable in dealing with applications that are the extension of its enterprise-business focus. While that is fine, IBM may not exploit Watson's full potential. For example, it does not seem like Watson will appear on the Internet anytime soon in a Google-like service. This is understandable, since it is a different business model than IBM is used to. But given Watson's potential, why not license the technology to someone who can make use of it?
