Understanding What Update Levels Mean

Update levels in Windows Vista
In Windows Vista, Windows Update can automatically download and install both Important and Recommended updates. With Windows XP, only updates classified as High-priority are automatically downloaded and installed. To manually select and download other updates, please visit the Windows Update website.
Both Windows Update and Microsoft Update offer different levels of updates for your PC. The goal is to make sure you get the updates that help keep your PC secure and running well, while giving you choices about less important updates.
In Windows Vista, these three levels are: Important, Recommended, and Optional.

Important Updates
Important updates are offered to help you keep your PC more secure and reliable, protecting your PC and privacy. Important updates generally:
Help to protect your PC from security or privacy threats
Provide solutions that significantly improve the reliability of your PC
Help you detect non-genuine Microsoft software that could harm your PC
Verify your copyright-protected media such as movies or music
Recommended Updates
Recommended updates are offered to help enhance your computing experience and keep your PC running at its best. Recommended updates generally:
Help to make your PC more reliable or compatible
Improve the information you see in Help files and similar areas
Upgrade or add new features to Windows
Upgrade or add new features to other Microsoft software (Microsoft Update only)
Optional Updates
Windows Update and Microsoft Update offer Optional updates you can review and install if you like. Updates classified as Optional include those that:
Offer you new or trial Windows software
Offer you new or trial versions of other Microsoft software (Microsoft Update only)
Provide you device drivers from Microsoft partners (Note: drivers will be automatically promoted to Recommended by Windows Update if you are either missing a driver or if the one being offered is more fully featured.)

Update levels in Windows XP
In Windows XP, there are only two levels of updates: High-priority and Optional.
When you turn on Automatic Updates in Windows XP, Windows will routinely check for High-priority updates that can help protect your PC from the latest viruses and other security threats. These updates can include security updates, critical updates, and service packs.
To download and install Optional updates, which include new software and drivers, visit the Windows Update website.