What width between dropouts is suitable for a hub of Xmm?
You can find the whole gamut of tolerances, especially if you include very low-end bikes. All the numbers I have are my own estimations but they are based on taking rulers to plenty of frames and taking wheels in and out of thousands more.

There is no formal rule for what's acceptable, so any answer is likely to be viewed as too tight by some and too loose by others. However, a lot of framebuilders and industry types see +/-0.1mm as the gold standard for most of the key frame alignment tolerances on higher end bikes, including dropout spacing, rear end alignment as measured with a Park FAG or similar tool, and a bunch of other dimensions. Many decide upon .1mm as the number where if you try to do better you'll be chasing ghosts, struggling to reproduce measurements, etc. A lot of nicer bikes measured out of the box will conform to that for their dropout spacing.

Less premium but still "dealer-level" bikes these days are almost always +/-0.5mm or better for dropout spacing, although occasionally you see a bike where it's more like 1mm. 

Low-end and historic bikes are way more all over the place with dropout spacing fidelity. On a contemporary steel department store bike, it wouldn't be surprising to see +/-3mm. For aluminum the dropouts can't be leaned on to flex into conformity the same way and things aren't quite as bad, maybe half that number.

You mention 120. Bike boom bikes had very sloppy tolerances for dropout spacing, probably something like +/-3mm. Good modern track and singlespeed frames are usually very close to dead-on, like +/-.2mm or better. Quickly dialing in optimal chain tension is a total nuisance when you've got gap at the dropouts.