Synchronization occurs when there is one central repository of information that all devices write to and read from. So contacts sync through iCloud. That is, changes made on one device are mirrored in the copy of your contacts kept on iCloud, and the other devices read those changes from iCloud. Since each device reads and writes to iCloud independently, the devices could be on different continents and still sync.
Your SMS/MMS messages and iMessages live only in the device that receives them. That device then must forward them over a common local WiFi network to share them with other devices. There is no central repository for messages. Text messages are purged from the sending server as soon as the designated recipient device receives them. And forwarding only works when the devices are on the same common WiFi LAN.
As to why updates sometimes mess up settings, it’s just the nature of software and firmware when you make changes to a device. It is not universal however - I’ve yet to have an iOS update mess up my iOS or OS X continuity settings, but sometimes things do go a bit awry.