Noting that Jim59 did say it is
not slant distance...
but I've never seen it stated if it is the distance at your present altitude or the distance on the WGS84 surface
For my experience, when you enter, then navigate toward an intermediate waypoint on the GPS, you have not entered an altitude associated with that navigating waypoint. With accurate flying, you could arrive exactly on the waypoint - zero distance, without being told that you are above or below it.