This is similar to running cg-fetch and cg-merge commands successively. Please refer to the documentation of those commands for more details about the operation. Note that if you are not doing own development but only following some project, it is recommended to use this command instead of cg-fetch(1) + cg-merge(1) since cg-update(1) can handle some additional corner cases (in particular, if the remote branch rebases, cg-update(1) will fast-forward instead of doing a tree merge and diverging).
Note that in the GIT newspeak, the operation being performed by cg-update is now called pull, even though in the past, pull was the name for the operation being now done by cg-fetch, which is even still aliased to cg-pull. Please do not let this confuse you. (Cogito won't call this update operation pull, since about everyone but GIT and BK users uses it in the fetch meaning.)