The Apple Pencil will work Apple's new 9.7-inch iPad Pro. Like the larger iPad Pro, Apple is really pitching this smaller model as a tool for content creation, and being able to use a stylus for art and design is, naturally, a big part of that. As with the other Pro, the stylus can be used here to do pretty much anything your finger can, but with more precision, be it navigating around the OS or writing and drawing.
Apple uses a slightly different screen technology on both of its iPad Pro models, which is what allows them to support the Pencil. Both Pro models become more sensitive when the Pencil is active, doubling how often the display looks for touch input. That's what allows the stylus to work well here, whereas styluses used on the standard iPad often leave much to be desired.