What is the benefit of the option Auto Update on iPhone?

Every update includes security enhancements. If you don’t update you don’t get these improvements to your phone’s security from hacking. The reason iPhones don’t get viruses and malware is not because Apple built a perfect wall. Cybersecurity is more than a wall, it is an arms race between the bad guys and the good guys, so the good guys need to be constantly prepared for the next attack. Microsoft issues frequent security patches to their software. Apple’s approach is to build these into upcoming releases, both for iOS and MacOS. Both 14.5.6 and the latest updates to MacOS include security improvements.

You should always use the most recent version of iOS. Updates provide security enhancements, defect repairs, and occasionally feature enhancements or additions.

You should also always update your apps at the earliest opportunity.

Here are the benefits associated with the iOS 14.6 update which was released by Apple on May 24, 2021.

Did you read the release notes? If you go to Settings > General > Software Update they will appear there if you have not yet updated.