For #1 - You just extract the contents of an update.zip into the placehere folder, modify its contents, and run the script stating to create an update.zip
For #2 - So far these are the options i have in there for create the update-script
1. Copy directories 2. Copy files 3. Create Symlinks 4. Delete file 5. Delete directory 6. Flash boot image 7. Set permissions for file 8. Set permissions for directory
So this script guides u as u select each option, and adds the appropriate command to the update-script file. Then u exit that sub-menu and create update.zip