I looked into this awhile ago.
Kindle Previewer 3 and Kindle Create produce a variant of KFX format known as KPF (Kindle Package Format). The main component of this format is an SQLite 3 database containing the book's metadata and content split into pieces known as fragments or entities. These are highly structured and coded in
Amazon's binary Ion format.
The KFX dictionaries appear to be in the same format with some exceptions: The fragments that make up the book's content are encrypted in DRMION format. There is an added table that maps words in the dictionary in-language to positions within the book's content, presumably where their definitions are located.
Inflection processing appears to be hard coded in the reader software for the small set of languages that are supported by KFX dictionaries.
The KFXGenApp, which is part of Kindle Previewer 3 and is used by my KFX Output plugin for calibre, lacks the ability to convert dictionaries. If you bypass the check preventing conversion you find that it is missing language-specific DLLs that are needed for that process.