Can I make calls with Apple Watch?

You can indeed make and answer calls with the Apple Watch. It has both a speaker and microphone, though it is intended for short calls, as Apple implies on its Apple Watch page: "Use the built-in speaker and microphone for quick chats, or seamlessly transfer calls to your iPhone for longer conversations."

You can also use Apple Watch to transfer calls to your car or to your Bluetooth headset. Additionally, there is walkie-talkie functionality, though they didn't go into this during the Apple Watch event. According to Apple you will be able to use this feature for "spur-of-the-moment sound bites with friends."