It does both. Black border alone marks the default button in the dialog (unless another button is focused), black border + dotted outline marks focus.
I double checked in a VM running Windows 98 earlier today. I suspect some of these 9x recreations are based solely on screenshots, in which details like active and focus states are not obvious.
* Thick black border indicates which button would be pressed if you hit enter. This is the focused button, or the default button if no button currently has focus.
* Dashed border indicates which button or other control currently has focus; this button is pressed if you hit space (but if another control has focus then space does not press the default button).
I double checked in a VM running Windows 98 earlier today. I suspect some of these 9x recreations are based solely on screenshots, in which details like active and focus states are not obvious.