it's somewhere in the middle. mountain caves will appear in unexplored mountains. for the purposes of this conversation "unexplored" means the map fog is quite a good distance away.

example: if, before the update, you ran around the perimeter of a mountain, but did not go into that mountain at all, it still might not spawn caves. However, if you find a brand new mountain you've never been close to, it has the chance to spawn caves even on your existing world, provided the other conditions for caves to spawn are also met.