Firstly, your understanding of how internal marks are calculated is wrong, so most of what you are asking is meaningless.
During the year, you obtain marks through assessments, and at the end of the year, there is some mark associated with your name and your peers will also have a certain mark. This is reflective of your achievements at school. Subsequently, when ordered, the ordering becomes of your rank (obviously). But how exactly is a rank a useful piece of information when it doesn't take into account the individual performance of each student? A rank is simply a number that represents your position amongst your peers. But does coming 20th really mean you're that far away from first, in terms of individual skill and achievement? Or does coming 3rd really mean you're that close to first, in terms of individual skill and achievement? Well the answer is no in both cases - put that thought aside for a moment.
You and your peers will have a unique set of marks distribution. This is your achievement based on the assessments typically designed by your school. But BOSTES needs to fairly compare your assessments to the assessments designed by other schools. We can't simply say that a 90% at your school is the same as a 90% at the school I went to. To fairly compare these marks, BOSTES must have some control assessment to compare students. It should be clear that the only assessment that all students complete, who do the same subject, is indeed the Higher School Certificate exams.
So how does BOSTES use this to fairly compare students? They do so by a process called moderation. Now this is where the marks distribution is important, and coming back to individual skill and achievement. For example, if a set of school marks were 90, 80, 78, 75, 70 and 65, that is a very different scenario to if the set of school marks were 90, 89, 87, 86, 80 and 65. In the first set, marks were clustered towards the middle-end. In the second set, marks were clustered towards the front. It is this distribution that needs to be taken into account when BOSTES moderates or adjusts these marks, in order to produce your internal mark or assessment mark.
Now at that stage, you would have already sat your HSC exams. You and your peers would have achieved some sort of mark, and anyone could have achieved any mark, high or low, doesn't matter if you were first in school or last in school. The HSC exams are completely separate to your school achievements. But what BOSTES does during moderation is they pin the highest exam mark to the student who came first in school, and the they pin the lowest exam mark to the student who came last in school, and these then become their internal mark or assessment mark.
So what happens with the marks in between? They are moderated in a way that reflects your school marks distribution. Let's say the exam marks are between 98 and 92, as you have suggested. First is awarded with 98 for their assessment mark, and last is awarded 92 for their assessment mark. So in both sets of marks that I suggested above, the 90 gets moderated up to 98, and the 65 gets moderated up to 92. But, in the first set, since marks are clustered towards the end, that means the moderated marks will be clustered towards the 92 end. This could possibly be say 98, 94, 94, 94, 93 and 92. In the second set, since marks are clustered towards the front, the moderated marks could be 98, 97, 97, 97, 96 and 92. Since the range of exam marks are so close, it's certain that students, even with differing school marks, will be awarded the same internal mark.
Note that factors such as the mean or average of the marks, as well as exactly how they are distributed are taken into account - meaning, when pinning the highest and lowest exam marks, all other marks do not matter, but those marks are important when finding the average because the average of your school marks must be adjusted (i.e. during moderation - going from school marks to moderated assessment marks) to match the average of the exam marks. What matters is that if your marks, not rank, but your marks in school are closer to first than they are to last, then your moderated assessment mark or internal mark will be moderated closer to first.
It is paramount that you understand that marks are not simply given out based on your rank unless you are first or last. 2nd in school does not get the 2nd highest exam mark. 10th in school does not get the 10th highest exam mark. This school rank-exam mark matching does not happen. This notion of matching exam marks to ranks does not occur!
So in your example, those who are on the same rank will get the same internal mark, but that mark is reflective of how close or far they are from first. They do not simply get 97, but they all do get the same mark. If they are far away from first in school, despite being second, their internal mark will reflect that.
There is no tl;dr version to this, because you simply do not understand how it works, and a dumbed down version to an already dumbed down version is not useful. All information can be found on the BOSTES website, so there is no excuse for any student to not know how it works:
http://www.boardofstudies.nsw.edu.au/hsc-results/moderation.html
