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On Watson wiki page we can read:

In healthcare, Watson's natural language, hypothesis generation, and evidence-based learning capabilities allow it to function as a clinical decision support system for use by medical professionals.

How exactly such AI can help doctors to diagnose the diseases?

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Watson can make its diagnosis based on the patient's data and comparing it to the data from million of other studies.

For example having enough genetic data and the right algorithms, its AI computing capability demonstrated the huge potential of data analysis based on which it can used for everything from diagnosing rare illnesses to prescribing perfect dosages of medicine based on the patient's personal genetic makeup. Of course there are still plenty of challenges which need to be overcome before it can be used in mainstream medicine.

Recently Watson was able to diagnose rare form of leukemia after treatment was proved ineffective. It was fed in with patient’s genetic data and compared to data from other 20 million oncological studies.

Sources:

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