To start, update -r 1 cancels revisions 2 and 3 in your working directory, while backout -r 1 -merge cancels revision 1, keeping versions 2 and 3. But there is a more fundamental difference:
updatechecks for an older revision in your working directory, while the backup creates a new one (but usually you should commit after the merge above). Try to run glogafter each of them to see the schedule of changes:
before:
0 - 1 - 2 - @3
after return:
0 - @1 - 2 - 3
upon return --merge; commit
0 - 1 - 2 - 3 - @5
\- 4 - - - /
, , . 3 . , 5, , 1.