This is important knowledge for anyone who has to manage upgrades: knowing how it works lets you easily automate most of it and deal correctly with the fallout.Most packages rely on dpkg to properly install configuration files.
can do a certain amount of automatic handling of package configuration files.
Whether this mechanism is appropriate depends on a number of factors, but basically there are two approaches to any particular configuration file.
It is therefore very important to first select the configuration files that should not be automatically updated.
This is simply a matter of entering the number listed to the left of that configuration file.
When you ran etc-update the first time, you would have seen something to the effect of "merging minor changes in ..." Minor changes means, as far as I know, changes to the two or three copyright comment lines at the beginning of a stock-standard config file and perhaps even other comments within the file. If there is something to do, etc-update will present you with a list of files that need updating and then provide a primitive interface to edit each one.
Each person has there own way of actually editing the files, so I won't go into that.
When using can be used to exit the application as well.
For more information, check out the dispatch-conf man page.
Dpkg keeps a checksum of the last installed version of configuration file.