just refer the below link for more details, - so basically the install will over write all the realted files for the VIB but in Update it will just update the required files and some times you dont need a reboot. And update is the recommended method by the vmware.
Notes:
- To install or update a .zip file, use the -d option. To install or update a .vib file use the -v option.
Using the update command is the recommended method for patch application. Using this command applies all of the newer contents in a patch, including all security fixes. Contents of the patch that are a lower revision than the existing packages on the system are not applied.
- Using the install command overwrites the existing packages in the system with contents of the patch you are installing, including installing new packages and removing old packages. The install command may downgrade packages on the system and should be used with caution. If required, the install command can be used to downgrade a system (only for image profiles) when the --allow-downgrade flag is set.
- The install method has the possibility of overwriting existing drivers. If you are using 3rd party ESXi images, VMware recommends using the update method to prevent an unbootable state.
http://pibytes.wordpress.com/2013/02/17/vmware-esxi-network-driver-install-and-upgrade/