What will the password be reset to for inbuilt user management?

In Version 5, Prolaborate enhanced the Security policies which resulted in passwords being stored in encrypted format in the database. So, if the user upgrades the version 3. x with 5, the admin needs to reset the Password using Prolaborate service management.

Will it impact the admin default accounts?

Yes, when updating the password in service management, all the passwords of registered user get changed which results in existing users required to enter the updated password to login.