An update is a regular, incremental release provided by Microsoft under the One Version strategy. It includes bug fixes, security patches, regulatory updates, and minor enhancements, and is generally low risk.
An upgrade is a major version change that introduces significant architectural, functional, or platform changes, such as migrating from Dynamics AX 2012 to Dynamics 365 Finance. Upgrades require detailed planning, data migration, code refactoring, and user training.
First read the answer fully, then try to explain it in your own words. After that, open a few related questions and compare the concepts. This method helps you remember the topic for a longer time and improves exam preparation.