The "online update" updates your installed packages from the internet. The "system update" tries to update your entire system, of course if you have a newer version of SuSE. The system update updates from a CD or DVD. For example: you have SuSE 9.3 and then you obtain a SuSE 10.1 DVD. You update your sys from the dvd, with the "system update" button. Thats all.