It sounds like you have turned on the Software Update Server function in Server.app if you don't need this function then you can turn it off in Server.app and then delete all the contents of that folder.
You could also reconfigure Software Update Server to only download selected updates rather than the whole lot.
Note: If you don't either disable the updates your deleting or turn off the entire Software Update Server it is likely to redownload the updates again.
If you have a second drive you could reconfigure the location used to store these updates. Probably the easiest way is to replace the folder with a link to a folder on the other drive, you would do this in Terminal.app
Nevermind on that. I'm new to Mac Server, just trying to learn. I'm use to clicking apple > software update and installing updates for my Mac from there. I understand on the server that the software update section is great for testing before installing. My question is, is if I turn it on Manual, I can install what I want. Once it's installed, can I delete the downloaded files from the Library area and it not affect the update that is marked "enabled"?