So an .img.gz will NOT scrub the entire disk, just over -write necessary system files?
Essentially "update method" updates (or downgrades if updating to an older build) all system files, leaving all users setup information and addons as they are: unless its absloutely neccessary to disable/upgrade a user related addon/item due to incompatabilty with build being installed.
This is why its "recommended/extremely important" to create a backup (and store away from device) using backup options via libreelec settings option.
That way if in unlikely case anything does go wrong with update method, you can get back to previous build you had installed and recover from backup to have everything set-up and working as it was orginally on your device.