It makes reimbursements, states have to pony up the money. States have to ask for it in the form of vouchers which are submitted to the feds. It no way covers the small state roads and bridges.
http://www.gao.gov/new.items/d06572t.pdf
Most of it goes to Federal Highways, some of it to mass transit. But by and large road projects are funded in each state by a majority of State funds, not federal dollars, unless it is a Federal highway.