"Project updates" refer to what is essentially each project's blog. Project creators use updates to keep their backers informed on the development of the project. Creators have the option to notify all of their backers about an update, or backers of select reward tiers. Some creators may post every day, others may do it rarely, but it's the best way to keep backers informed of a project's progress.
Each post can be made publicly viewable or backers-only. Backers-only updates allow you to communicate privately with backers as a group.
Want some ideas for your project update? Check out this post on 50 ideas for sending great project updates.