You are misunderstanding what the words are referring to. Which is understandable, it isn't particularly obvious. However,
apt update will update the list of available packages. On the other hand
apt upgrade will upgrade installed packages to their latest version. But, before you can upgrade your system to the latest version, you need to first update the list of available packages so you can know what the latest version is.
So I do understand your confusion, but the reason is because it is one thing that is being updated (the package list) and another that is being upgraded (the packages themselves).
update is used to download package information from all
configured sources. Other commands operate on this data to
e.g. perform package upgrades or search in and display details
about all packages available for installation.
upgrade is used to install available upgrades of all packages
currently installed on the system from the sources configured
via sources.list(5). New packages will be installed if required
to satisfy dependencies, but existing packages will never be
removed. If an upgrade for a package requires the remove[sic] of
an installed package the upgrade for this package isn't performed.