It is loading a Windows 95 VM (using https://copy.sh/v86/) and runs an actual copy of Encarta 95 there, yeah.
It's just a crappy render of a Windows VM's display, in all it's upscaled pixelated glory, it's not even doing anything webby like a Javascript engine that decodes whatever database Encarta used and rendered the data in crisp HTML.
If they had asked AI to do all the above, I'd be more impressed than this (I'm guessing) human-made slop...
(For example, there’s some URL magic going on -- articles you open show up in the fragment portion, e.g. #/article/Art -- which is non-trivial considering you have to pass that information into the VM and back.)
Actually, I didn't know that one could ship a pre-booted OS inside the emulator.