A 1" and 10 lb. difference is inexplicable to some as cause for a deal breaker in his dynasty projection as a potential elite WR.
It does make a difference in the red zone. 6'0 tall WR don't typically excel in the red zone on a regular basis. It is what it is. Is it possible that Watkins could be the exception to the rule? Yes but it's unlikely so you have to ignore the crazy hype of being a top 5 draft pick and downgrade him accordingly.
Again, I'm not sure the red zone will be the most important part of his game. Crabtree and Harvin aren't 6'2", 220 lbs., either (though Crabtree is within 1" and 5 lbs. - Watkins is closer to 6'1" than 6'0"), and they had the top 3-5 half seasons in 2012. Why prorate a half season? Harvin had been trending up before the injury cut short his season, and Crabtree's breakout coincided with the introduction of Kaepernick into the starting line up. It is an exception recently, which raises the historical question, could this be cyclical, or will it prove to be a long term trend.
An article by Matt Waldman and Chase Stuart addressed whether taller WRs did better than their shorter counterparts, if they had the same draft pedigree (same approximate range selected). Their conclusion (with some minor modifiers, people can google it if interested), was that they didn't. A popular opinion seems to be that since Mike Evans was taken near where Watkins was (1.7 and 1.4, respectively), since he is taller, also fast for his size and a plus athlete with good hands, even apart from QB considerations, Evans should do better because he is taller. If I understand the article, it states the height difference is already priced into the higher pedigree of Watkins. Scouts know he isn't as tall, so if he graded out higher than Evans, they understandably concluded scouts are weighting other factors higher (that was in general, I don't think they used that specific example), and think he does other things better.
I found the article instructive, partly because there was a long list of shorter WRs that have done well, and bigger WRs that flopped. There are (at least lately) more tall, elite WR prospects. So, again, if I understand the article, and this is my example, not exact percentages, if there are 4 taller prospects and two shorter prospects that are drafted in the first round of a given draft, and the bust rate is about 50%, ON AVERAGE

, there would be 2 hits and 2 busts among the tall WRs, and 1 hit and one bust among the shorter WRs. So twice as many tall hits. But also twice as many tall busts. If a taller and shorter WR are both taken around 1.5 (not a lot of them in the past decade) or 1.10, their statistical and historical research suggested they tend to do about the same. The taller WR didn't do better, though that seems to be an assumption by many.
My recollection is that article wasn't specifically looking at elite WRs ONLY (in the sense of this thread), but encompassed first round data.