An upgrade is an upgrade to a new version usually with additional functions. In this case one speaks of a new "major release". This upgrade package is usually billable and also includes a new license. An upgrade is from WinCC V5 to V6, for example.
An update is a further development within a program version (e.g. from WinCC V6.0 SP3 to SP4). Updates are always free of charge and provide no or only minor additional functions.