How Does Weighted KNN Work?
We can view nearest neighbor as a voting process where we consult our $k$ nearest neighbor.

We give the $i$-th data point a voting weight $w_i$.

In your example, each data point in class $A$ has weight $\frac1{0.95}$ and each data point in class $B$ has weight $\frac1{0.05}$. There are $4$ votes from class $A$ and $3$ votes from class $B$. We give class $A$ a score of $\frac{4}{0.95}\approx 4.21$ and class $B$ a score of $\frac{3}{0.05}=60$. Class $B$ has a higher score, hence we assign it to class $B$.