Using watch command with "echo -e"

The output is static because $() is resolved by your shell before watch starts.

Quoting with '' should help. Single quotes prevent expansion, this way $() will be passed literally to watch, then parsed every time:

watch -n .1 'echo -e "$(cat test-status | wc -l)/$(cat iplist_test | wc -l)"'

Also you misuse cat. This should work without any unnecessary cat processes:

watch -n .1 'echo -e "$(<test-status wc -l)/$(<iplist_test wc -l)"'

If there are single-quotes already in the command you want to watch then see this: How can I single-quote or escape the whole command line in Bash conveniently?