Default [Q] What does update.zip do

Alright so this belongs in the android dev section for sgs4g but i cant post there because I dont have 10 posts lol but anyways...I was just wondering what exactly the update.zip file does AFTER I boot into CWM because everytime i try to flash it i get the cannot mount e:/....cache or whatever it is error(not really an error but it just doesnt flash).I have tried to maunally mount cache and the other one but it still doesnt flash.Once again i am able to boot into CWM but dont understand what the update.zip is for. Thanks in advanced