My take on the stop watch is pretty simple.
Maybe it'll work like this: When used, everything(items, stage movement, music) except the user will be frozen in place for a few seconds(lets say 5 for example). The user will then have that time to beat the crap out of them. Players being hit won't be moved at all(think Ice Climbers glitch) until time runs out.
Or here's a theory for fun: Think of the timer on a Mario game when it gets low. The music speeds up, then every player has 10 seconds. When time runs out, the player with the higher % dies