Asking to “Delete iCloud Data” to be able to set up my Apple Watch

I just factory reset my Apple Watch because I forgot my password. When I tried to set it back up, it wants me to log in to my iCloud. It first asks for my current iPhone password which is no issue but then it asks to insert a password from my old phone or my old iPad, both of which I do not remember the passwords to. It says my only other option is to “Delete iCloud Data” to be able to set up my Apple Watch. I have a few questions. Is this really the only thing I can do? Also, if so, what does it really mean to “Delete iCloud Data”? Will it delete my apps, photos, etc?

[Re-Titled by Moderator]