A quick empirical test reveals itA quick empirical test reveals it is the radius.
The answer is neither. It looks like a cluster of points is first created, with its own rules. It looks like all points within the given distance of a seed point are clustered, then a weighted centroid is computed. (Depending on how this seed point is computed, we can expect two similar looking sets to have a different cluster)
If there are more than 2 points, the centroid can be further away than distance/2 from a point, so the distance is not a radius. At the same time, other points could be closer than distance/2 from the centroid while still be excluded from the cluster, so it is not a diameter either.
