The
w98undo.dat file is a file created when you upgrade to Windows 98 from an older
Microsoft OS. It is all the data that your previous OS used (or
something like that. Yeah.) and when you uninstall W98 it uses this to restore thing to
the way things were before.
Sure you can delete it, but you won't be able to uninstall W98 unless you use format c: /s. Keep that in mind when nuking stuff.