aptitude update will update your software resources list and with this update you can upgrade your Linux distribution.
After this updating with
aptitude full-upgrade you can upgrade your software version on current distribution version. I mean when you are on Debian 6 and there is a newer version like Debian 7, you just updated your software to the last version of them that come with Debian 6 and not 7.
And at last, with a
dist-upgrade you will get the latest version of you distribution releases.
Edit: for a dist-upgrade you need to update your sources.list file too.
About updating your OS system separately from your software, this concept is Windows-specific and doesn't make much sense in Linux. When you
dist-upgrade your system, you update everything.
To get more information about
man command. type
man man in your terminal to learn more.