I think you might be conflating two different operations.

* `rpi-update` is a [tool to upgrade the firmware][1] on your Raspberry Pi. Firmware is a small package of code that lives on a special chip on the Pi (or any computer) that helps the software know how to talk to the hardware.

* Raspbian is an operating system or the [core software for your Raspberry Pi][2]. Software (including the OS) lives on the SD card and is all the stuff that gets executed when you use your device.

Both of these need updating independently. For convenience, the `rpi-update` tool is included in the Raspbian distribution of Linux because it is a useful software tool that manages the firmware of your Pi's. You should run it periodically to make sure your devices have the latest firmware. Separately, you need to keep your software up to date using the standard Debian software management tools like `sudo apt-get update && sudo apt-get upgrade`.

Each of these functions is separate, and updating one will not update the other. Upgrading your distribution to the latest software packages might get you a new version of `rpi-update`, but unless you RUN `rpi-update` your firmware will not get updated.

  [1]: https://github.com/Hexxeh/rpi-update
  [2]: http://www.raspbian.org/