Guy Glantser explains the process around updating data in SQL Server, particularly the benefit of having update locks:
In order to update a row, SQL Server first needs to find that row, and only then it can perform the update. So every UPDATE operation is actually split into two phases – first read, and then write. During the read phase, the resource is locked for read, and then it is converted to a lock for write. This is better than just locking for write all the way from the beginning, because during the read phase, other sessions might also need to read the resource, and there is no reason to block them until we start the write phase. We already know that the SHARED lock is used for read operations (phase 1), and that the EXCLUSIVE lock is used for write operations (phase 2). So what is the UPDATE lock used for?
If we used a SHARED lock for the duration of the read phase, then we might run into a deadlock when multiple sessions run the same UPDATE statement concurrently.
Read on for more details.