1. I don't think that there will be a problem installing that update. That means that you have Java 6 installed apart from Java 7 (both can be installed without any problem). My advice is to install it.
2. Apple supports Java for Mac OS X, but it's not installed on OS X Lion and Mountain Lion by default because of security problems. These updates are to solve security problems, that are a lot with the Java plugin
You don't "need" Java, but some users require it for their uses such as accessing web sites that include Java applets.
The new release closes one more security hole in Java thqt can be exploited by makers of malware.
If you don't use Java and have it turned off in Safari preferences, then the update isn't required.
Although Apple will no longer provide their own Java, you may still obtain OS X compatible versions of Java from Oracle.
hmm actually now the update makes sense, i found a link to the update
This release updates the Apple-provided system Java SE 6 to version 1.6.0_43 and is for OS X versions 10.7 or later.
This update uninstalls the Apple-provided Java applet plug-in from all web browsers. To use applets on a web page, click on the region labeled "Missing plug-in" to go download the latest version of the Java applet plug-in from Oracle.
This update also removes the Java Preferences application, which is no longer required to configure applet settings.
So basically Apple is removing the Java they forced me to install
This is good i guess since now i can have one Java VM, i hate to mix things.