What is Update under Locations in Finder?

Ventura macOS 13, the Operating System resides in a Sealed and Read Only Volume that can not be opened by the User 

To get an accurate representation of the Drive structure in Monterey

1 - in terminal  type ' diskutil list " without the Quotation Marks

This is an snap shot of this command

And agree with @Luis S above it should not be visible to the User and there not appear in Finder

diskutil list

/dev/disk0 (internal, physical):

   #:                       TYPE NAME                    SIZE       IDENTIFIER

   0:      GUID_partition_scheme                        *251.0 GB   disk0

   1:             Apple_APFS_ISC Container disk1         524.3 MB   disk0s1

   2:                 Apple_APFS Container disk3         245.1 GB   disk0s2

   3:        Apple_APFS_Recovery Container disk2         5.4 GB     disk0s3

/dev/disk3 (synthesized):

   #:                       TYPE NAME                    SIZE       IDENTIFIER

   0:      APFS Container Scheme -                      +245.1 GB   disk3

                                 Physical Store disk0s2

   1:                APFS Volume Macintosh HD            8.8 GB     disk3s1

   2:              APFS Snapshot com.apple.os.update-... 8.8 GB     disk3s1s1

   3:                APFS Volume Preboot                 5.2 GB     disk3s2

   4:                APFS Volume Recovery                741.4 MB   disk3s3

   5:                APFS Volume Data                    18.0 GB    disk3s5

   6:                APFS Volume VM                      20.5 KB    disk3s6

EDITED

There is a volume in your system drive with that name, but it is supposed to be hidden and should not appear in the Finder.

Try force-quitting the Finder: press Command-Option-escape, select Finder and click Relaunch.

Does the unusual "update" persist in the sidebar?

Before doing a reinstall, you may do some more testing.

Restart in Safe Mode. Does it still appear?

Restart normally and login to a new user account. Does it also show this "update" in the Sidebar on the new account?

Thank you so much for taking the time to type this out. Do you recommend backing up the Mac and resetting it?

If there is nothing else wrong with your Mac, I wouldn't risk causing some problem to appear. Drag it out of the Sidebar and it should not appear unless you reset the settings to show external drives in the sidebar.

As my colleague @ Luis S was first to offer assistance, out of respect to him, will hold off interfering here