Can someone explain what is the significance of the 'Update the output directory'?

[kinook]

If you're referring to the option on the Project/Solution tab of the Make VS.NET action, it determines what folder the projects' compiled executables will be generated in.
http://www.visualbuild.com/Manual/vs...olutiontab.htm

Use this option only if you want to change the output path for the executables. It will not have any affect on the compilation process itself (what GUIDs are generated, etc.) other than the location of the executables.