It uses the second option
Originally Posted by coderzone
2. You save a compiled executable as a resource in the project of your VC and when user saves the data extract the binary resource to the harddisk and assign the settings accordingly into some predefined resources.
as the size of the download is onky 3.6 MB which can make us assume it does not have the compiler for creating the exe.

Also just open the gamemaker after instalation and click on File -> Create Executable and then try running the exe. You will see the error about the resource which suggest that they have the exe as resource and when saving they inject more resource into the exe for it to run.