We cannot fully answer your question without knowing what the update is. You will need to open App Store then click on the Update icon in the toolbar to see what update(s) is available. Since most updates can be re-downloaded they are simply downloaded, installed, then removed. Major OS upgrades (10.6 to 10.7, for example) are purchased upgrades, to the installer is automatically deleted (but that can be easily circumvented.)
I recommend making a backup first.
A Backup is always a good practice but usually I do all updates without it, but I can always count on a second Mac whith exactly the same content.
It is important to have the full battery or better to be connected to a plug.
No problem for your data: they are safe.
The question about applications may be more complex. With great updates (for instance from a 10.5 to a 10.6) the new system may remove some old apps no more compatible with the new SO. In this case you are encouraged to carefully read the information about the upgrade and see if something which will be removed is of great interest to you.
For small upgrades, like from 10.8.1 to 10.8.2 usually you can expect only improvements and no big changes, at least no new apps installed or removed.