What is a combo update and how is it different from a normal update?
When Apple releases a minor system version (e.g. 10.8.1 -> 10.8.2), they generally release the update in two forms:
A delta update containing all of the files that changed in the latest update, which therefore can only upgrade from the immediately previous version.
For example, in order to install the 10.8.2 delta update, your system must already be updated to 10.8.1.
A combo update containing all of the changes since the original release of that major version, and therefore can be used on anything from the same major version.
For example, the 10.8.2 combo update can update from either 10.8.0 or 10.8.1; it can even be reinstalled on a system that's already running 10.8.2.
Similarly, the 10.7.5 combo update can be run on anything from 10.7.0 to 10.7.5.
(Note that for the first update to a major version, e.g. 10.8.1 or 10.7.1, there's no real distinction between delta and combo, so Apple only publishes a single update form.)
If you have a Mac that's running the next-to-latest version and want to update it, the delta is technically all you need. But some people (myself included) tend to prefer the combo, for a couple of reasons:
I update a lot of computers, so to save time I carry the latest updates on my tools HD. It's simplest to just carry the combo update and not worry about the deltas as well, since you can use the combo anyplace the delta would be appropriate.
If anything has gone wrong with any of the previous updates, running the combo will generally clean up the problem, while a delta might leave it broken. In fact, sometimes re-running the combo on an already-updated computer will fix problems like this, so it's a useful trick to have in your troubleshooting repertoire. (Mind you, the types of problems this solves are rare; but they tend to be ones that otherwise would've involved hours of troubleshooting and hair-tearing, so it's often worth a try.)