update.zips are packages containing replacements for parts of an Android system. The packages contain all the files the update is intended to replace and a script that will do the replacement when it's run.
update.zips can come from OTA updates, but in some cases, it is necessary to manually download and put an
update.zip in some special folder. However, the
update.zip is still detected and applied in the same manner.
What part of Android detects and handles