Energy Saver Arduino
This example shows how to make use of the Watchdog and Sleep functions provided by the ATMEGA 168 chip . These functions are useful if you want to build low power consuming devices operated by battery or solar power.
The reduced power consumption is achieved by through a intermittent operation of the system .In case of Arduino your main loop will be executed once before the system is put into the sleep mode. After a few seconds t the watchdog wakes the system up and the main loop is executed again. The ratio between main loop execution time and watchdog time determines the amount of power that will be saved.
When we assume that the time to measure a sensor and making some decisions will take 10 millisecond and the watchdog is set to 8 seconds the on/off ratio is 800 which extends the battery live time by this factor.
[Source] Arduino Sleep_Watchdog_Battery