Apple's Watch is designed to be both fashionable and functional.
Apple's Lightning Digital AV Adapter is a Full-Fledged Computer
The company discovered that, like its Lightning to 30-pin brethren, the Digital AV adapter is considerably more complicated than it would appear. Among other discoveries, Panic found an ARM chip and 256MB of RAM inside.
There are a lot of questions. What OS does it boot? @jmreid thinks the adapter copies over a “mini iOS” (!) from the device and boots it in a few seconds every time it’s connected, which would explain the fairly lengthy startup time for video out. Why do this crazy thing at all? All we can figure is that the small number of Lightning pins prevented them from doing raw HDMI period, and the elegance of the adapter trumped the need for traditional video out, so someone had to think seriously out of the box. Or maybe they want get as much functionality out of the iPad as possible to reduce cost and complexity.Panic conjectures that for some reason the Lightning port isn't capable of outputting raw HDMI -- something that should give an extremely high quality image -- and instead uses a form of AirPlay to output video, delivering a lower quality video signal.
Update: Panic highlights this comment from an anonymous reader hinting at being an Apple engineer, which offers more details about how the adapter works and indicating that code updates are being made to improve the video quality.
The reason why this adapter exists is because Lightning is simply not capable of streaming a "raw" HDMI signal across the cable. Lightning is a serial bus. There is no clever wire multiplexing involved. Contrary to the opinions presented in this thread, we didn't do this to screw the customer. We did this to specifically shift the complexity of the "adapter" bit into the adapter itself, leaving the host hardware free of any concerns in regards to what was hanging off the other end of the Lightning cable. [...]
Certain people are aware that the quality could be better and others are working on it. For the time being, the quality was deemed to be suitably acceptable. Given the dynamic nature of the system (and the fact that the firmware is stored in RAM rather then ROM), updates **will** be made available as a part of future iOS updates. When this will happen I can't say for anonymous reasons, but these concerns haven't gone unnoticed.