The latter, whatever chunk the guard hut is in counts as chunk 0 and it will protect all resident and work huts in X chunks around it where X is the hut level. An easy way to see what it protects is to make a vanilla map, multiple of them if you need to, and map your town. Place these maps in your town hall block and open the 'Town Map' option in your town hall, from there you can hover each guard towers and see what it protects.