System updates upgrade the version of the system's firmware--which is basically the software that the device runs on. The updates are mostly for "behind the scenes" patching up and blocking flash cards, but sometimes new features are added, like the Camera's Facebook option and Data Management.
Like said before, updates on ANYTHING can be either adding a new feature, or updating firmware.
One thing I know is, if you hack into your system, and use it where administration can see you, they will patch that.
When the DSi first came out, it didn't have flipnote studio. But I didn't have to do a system update to get it, I just downloaded it off of the DSi Shop. But I did have to do an update so I could post pictures on Facebook. So updates just upgrade the preinstalled apps like the DSI Camera, DSi Sound, the DSi Shop, and the actual DSi in genrnal.
I hope this this answers your question!
There was a game called “Photo Dojo” that was free for a short time, but now it costs 200 points. But nobody really knows if there is going to be anymore free app/games.
It's actually really cool! You can take pictures of yourself (which can be frustrating at times) and put them in the game! Its a side-scrolling fighting game, and I really think its worth the 200 points. (I don't know if you can get it in the UK)