Software Update is a utility in OS X which checks for, well, updates for software. You have seen it pop up. By default it runs automatically once a week. It can also be run manually at any time from System Preferences.
Perhaps you have wondered what you should do about it.
What you should not do is ignore it, never run it, or disable it running automatically.
Not ignoring updates can be divided into three categories.
1. Security Updates. Should be installed. Sometimes they require a restart, sometimes not. They are typically small and install very quickly.
2. Mac OS X Updates. These are 'patch level' system updates which take you from, e.g., 10.2.7 to 10.2.8. They primarily fix bugs, and occasionally add a small feature. They should generally be installed after a waiting period of a few days to a week. The rule for system updates is, if it ain't broke don't fix it, because sometimes the fix breaks something else. For this reason, we let the early adopters discover the problems, then when we read online that the update is safe, we install it. (It is in the fine print of my job description to keep up with such things.)
Example: The 10.2.6 update broke Teamwork in AC8. The 10.2.7 update fixed it, but it took a while, and in the meantime the early adopters had to reinstall 10.2.5. *Step aside and let this happen to someone else.*
Another: The 10.2.8 update was so bad that Apple had to withdraw it and re-release it two weeks later. Eek.
3. Application updates. Apple makes it possible to update their apps (iPhoto, Safari, etc.) through Software Update. A few other companies, such as Aladdin and Microsoft, also make updates available this way. These updates are rarely mission-critical, but they're usually safe and worthwhile (knock). Check out the new features and see if they're something you want/need. If there is something important, I'll drop you a line.
Remember that Software Update can be run in the background. Required restarts can be put off until a convenient time.