It updates your software with bug fixes, security updates, newer versions, etc.
Check out the Podcast for the full scoop.
Click on the Apple Menu, and choose Software Update.
From there, you Mac will go out on the Internet, and check to see if it has the latest software.
If it finds anything, it will present you with a list of updates, and descriptions for each of them.
Some of these will require you to restart your Mac and others won't, but it will tell you if a restart is required..
You can set the frequency of the updates, Force it to check for updates, enable downloading updates in the background, and also view Installed updates.
If you look on the Software Update -> UPDATE menu, you can also select different options.
IGNORE UPDATE is a great one for when there is a huge update you don't want to download now, or perhaps the
update doesn't even apply to software or hardware you have installed.