Question: I am interested in knowing how software update works (technically). What all are the components that checks, downloads and installs new update and how do they work.

Answer: 
Click on the **More info** button, and then you will see the package description, a screenshot of the application if there is one available and an **Install** button located on the right-hand side of the window.
You should click on any application or software you need to install. It will open a new window, and on top-right side you will be able to see whether it is free/commercial version and also an Install button with it.