There are two issues at play here.
1) Who actually saw the event.
2) Who are the members of the "official group" ("Kaht") of witnesses that not only saw the event, but also serve as a specific group capable of authenticating the event for a Court of Law.
Everyone present probably saw the event. They are all witnesses.
However, the mesader kiddushin is asking the bride and groom to choose a limited group (2) of people to join the secret club called the "kaht" of witnesses to the kidushin act.
There is no power or logic to exclude the people there from the general group called "witnesses".
However, before the event takes place, there is power to create a special group of witnesses that exist as a privately locked group of 2 members by themselves; without joining the rest of the room's group.
So now we have two groups of witnesses.
A) 98 guests who were standing around and saw the event.
B) 2 guests that also saw the event but were designated as a private group of witnesses.
Now those two may go to court and give testimony without belonging to the other group of 98. That's the power of designation.
This prevents a large random group from forming and showing up to court, when they contain possible relatives. This would then invalidate the entire group as Halachah demands that a group of witnesses are either kosher or not kosher as a group.