Walt is correct. Small bits of semi-precious stones (often rubies, either natural or manmade), are used to support and allow for the smooth rotation of certain key elements of the watch mechanism. I say "key" elements because generally speaking the jewels are reserved for use with only those pieces which are under the most direct strain from the watch's mainspring (or motor, in the case of quartz watches). A standard rule of thumb is that the more jewels used, the better the mechanism. There is, however, a point of diminishing return that is quickly reached in this regard. A good quartz movement doesn't really require more that 7 to 9 jewels, while a really good mechanical movement will feature somewhere around 21 to 25 jewels. Multi-register chronographs are another story altogether, however, and can have many more.
------------------
Semper Fi
-Bill