The compass bezel is not a magnetic compass: it is a solar orientation instrument that uses the hour hand as an approximate gnomon. This distinction is fundamental, and is often lost in commercial descriptions.
The operating principle has remained the same for decades. In the northern hemisphere, you point the hour hand toward the sun, then rotate the bezel until the «S» is exactly halfway between that hand and 12 o'clock. At that point, the «N» marker indicates approximate north. In the southern hemisphere, you reverse the process: point 12 o'clock toward the sun and align the «N» to the midpoint. The watch must be held horizontally; during daylight saving time, it's best to use solar time by subtracting one hour. The accuracy is that of a field method, useful for maintaining your general direction of travel, not for topographic surveys.
The bezel can be external or internal. The external version—bidirectional, with an anodized aluminum or ceramic insert marked with the four cardinal points—is the most common solution in field watches, from the Hamilton Khaki Field Expedition onward. The internal version, controlled by a dedicated crown, is a more refined construction choice: Seiko's Alpinist positions it at 4 o'clock, separating it from the crown used for winding and time setting. This prevents accidental activation and keeps the dial reading clean.
On the workbench, I've seen compass bezels with a complete degree scale, which also allow measuring course angles, and reduced versions with only four or eight cardinal points. The former are more useful when used with a topographic map; the latter are sufficient for basic orientation. The bidirectionality of the bezel—unlike the unidirectional design of dive watch rotating bezels—is a functional choice: to correctly position the «S» or «N» marker, you need to be able to rotate freely in both directions without mechanical restrictions.
One detail that is rarely mentioned: luminescence on the cardinal markers only makes sense if you use the lunar method, which is even less precise than the solar method. At night, without a full moon, a compass bezel is not very useful. It's honest to say so.