Update set is a set or group of customization in ServiceNow through which whatever development changes and customization has been done in one instance can move or transfer to another ServiceNow instance.
Actually, whatever customization we do in ServiceNow will get captured in the selected update set and then that update set is exported and import to another instance to move customization from one instance to another.
ServiceNow update set is one of most important functionality or mechanism. For example, when we developed some functionality in ServiceNow developer instance, then through the update set we can move those changes to ServiceNow test instance for testing. Once it passes the test then those update set will move to ServiceNow productions instance so that, that functionality would be available in the production instance.