How does Windows know the default browser settings?
I can think of two possible answers to the question. If you are asking how IE knows whether or not it is the default browser, you can look at the Microsoft MSDN document Q153774. Each time Explorer starts, it checks the file association for HTML files. If it is not set to Explorer.exe for OPEN, then it is not the default browser.
If the question is “How does IE store its own settings?” then the answer is also in the registry. The following information is for NT 4.0, I’m not sure if it’s the same for Win95. In particular, for IE look at HKEY_CURRENT_USER/Software/Microsoft/Internet Explorer. For Netscape (at least, for the most current version I have installed), you can find it under HKEY_CURRENT_USER/Software/Netscape/Netscape Navigator.