Update - UP_DATE - make it up to date
This is simply adding the new modified files in a small scale, but will have the originality with new additions to it.
Ex: updating the Virus Definition in your Antivirus
Upgrade - UP_GRADE - move it to the upper (or next) grade (or level).
This is promoting from one level to another level, sometimes the out put product can be a totally changed version of the original which was existing earlier
Ex: Upgrading windows 8.1 to Windows 10
hotfix or quick-fix engineering update (QFE update)
The term hotfix is generally used when client has found an issue within the current release of the product and can’t wait to be fixed until the next big release. Hence a hotfix issue is created to fix it and is released as a part of update to the current release usually called Cumulative Update (CU).