Simply WDT in its software version is just a continuously decremented value that resets when every single istruction has been processed. Let's say you have a task to do, and you only have 1 minute to finish the task. A timer will be set at 1 minute decreasing the value by 1 second. If you manage to finish your task within the 1 minute time, the timer resets and again you repeat everything by doing another task. Now if your time is up, the WDT will sed a message "instruction" to you saying "sleep, you are not doing anything, don't waste your energy".
And of course to answer your question:
the software WDT is just a register in the program memory of almost all microcontrollers that has a decrementing value when the microcontroller starts doing its instructions. Now, if by mistake an instruction is taking so long, basically longer than the preset value of the WDT, the next instruction is to but the microcontroller to sleep to lower power consumption. In some microcontroller, the instruction implemented after the WDT time is up can be set by the programmer. If a simple circuit containing a button, LCD and an LED with the microcontroller, the microcontroller program reads button input and print atext on the lcd "LED is on", lights the LED and waits for 2 seconds. If the other cycle has no button input for too long, the programmer can ad a line to the program to print "time up" on the LCD.
I hope this answers your question.