One story is that these were used in jewelry store window displays. That way if someone busted out your window and did a snatch-and-grab, you were out the loss of your window and not hundreds of dollars in watches. The second, and most intriguing story, is that this was a shill piece. Often, a real gold watch was passed around, to much admiration. But, when the container was opened, after the flim-flam man was long out of town, you discovered that you had a gilded glass pocket watch, that was gorgeous, but it sure wouldn't tell time.
No ones knows for sure! This one is probably about 80 years old, but beware, there are reproductions out there!