What is the difference between "Update" and "Upgrade"?

Update - This is a new version with the name major version number (for example an update from v5.02 to v5.10) featuring minor software improvements and bug fixes. Updates are provided for registered users free of charge.

Upgrade - This is a new major version (for example an upgrade from version 5.20 to version 6.00) featuring major software improvements and new functionality. Major upgrades are not free.