Update.esm is the 1.1 (day one) update. If you installed the game on 11/11/11, this update was automatically downloaded. Future updates make it unnecessary (which is why it is not enabled in the launcher), but it is not automatically deleted. This is also why it is not downloaded when you reinstall, as newer updates supersede the contents of update.esm.
Update.esm is continuously updated. As Bethesda don't use the AutoPatcher system anymore, Steam would require the user to re-download the 250MB Skyrim.esm file every time there's an update. So instead of this they've split the updates into their own ESM file, so the user just downloads the update and not the whole ESM again. It doesn't show up in the launcher because the launcher is hard-coded to ignore the file. It's always loaded in game.