From my experience, Github does attempt a merge commit behind the scenes and indicates that a PR can't be merged via the UI if there are conflicts. However, it still just shows the diff from the merge-base to the tip of your feature branch, which won't include any changes that have been added to master since the branch point.
I see. So the button status is more up to date than the diff, and I suppose it is rare enough that the two are out of sync, that people just don't see it much? Makes sense I guess.
The merge button status is always in sync with the diff. It is disabled if the diff won't merge correctly.
To answer your earlier question more directly: the diff that is shown is a diff against an earlier master. (It's in fact a diff against the point where the branch forked off of master.)
