The Nike+SportWatch has no manual calibration of the foot sensor as the Nike+Sportsband does. As I surmised in my first review here is how they do it.
From official response by Nike on Nike Forums
"Thanks for asking about the calibration and how it works.
You're correct in noting that there isn't any manual calibration, as there is with other devices, where you actually tell your device, "I want to calibrate this run."
Instead, you set up an outdoor run where you are using both the Nike+ sensor and the GPS option. (In other words, on your run setup screen, both GPS and Footpod are toggled to "on.") Once you've run a certain distance with both good GPS reception and good footstrike data capture from the Nike+ sensor, the sensor will automatically be calibrated using that data, without you having to do anything.
Let's say you run a mile at a steady pace without pauses and have good GPS reception and good footstrike data. Internally, your SportBand might determine (based on sensor data) that you ran .91 miles. It would then adjust that .91 miles to match the GPS data--one mile--internally, and would save that correction factor and use it to adjust your future sensor-based runs (i.e., your treadmill runs).
It's the same principle that's always applied. The difference is that now, instead of you telling your device, "Hey, I ran a mile, not .91 miles!" your GPS is telling your device, "Hey, Upstate ran a mile, not the .91 miles captured by the sensor."
I hope this makes sense! It's actually a pretty cool system, and I hope it yields comparable accuracy to what you've come to expect."
I am still wondering if it works the opposite way when GPS signal is weak the foot sensor picks up the task. I think it may.