I was meaning to post this weeks ago when I first posted a link to this video of Matt Cutts on Google Terminology.

Better late than never…

Index Update = NEW CAR

Everything can be done at once: New crawl, new algo, new results… We RARELY ever see index updates now because the index is synchronous (in ever flux). The only time it might happen is when the old index is completely incompatible with the new one. 

Algorithm Update = NEW ENGINE

These are the biggest changes you are likely to see. It is a change in the way Google calculates the importance of a page. It is asynchronous (does not go on forever) and can happen at any time. 

Data Refresh = OIL CHANGE

This is when Google changes the data that their algorithm works on. It is Very common and some data refreshes are happening all the time (supposedly, Page Rank is being refreshed continuously). Other data refreshes happen at a slower pace. An Algorithm can go into effect many months before we begin to see the change in results because it might take that long for Google to implement the data refresh. 

Thanks to Donna for asking Matt this very important question.