It is indicated, it is just that Apple, in their infinite wisdom, continue to try to remove all contrast from the system. The two states are different, but in modern macOS only almost imperceptibly different.
The primary purpose in Favorites for the Clipboard History is that the favorited items do not expire.
No, you can't make them stick to the top of the list (I strongly suspect that would become annoying very very quickly).
The button toggles between the Clipboard History Switcher and the Named Clipboard Switcher, and of course either can be called up with whatever trigger you allocate in your macros.