Here is the process:

- once you uploaded an archive with new version, an update server grab it and parse xml for version information. Please note, you should make this archive as a main for your plugin;

- client's site pings update server once a day for plugin's update. As it get it, client will see a notification about update in admin area;

- by performing automatic update from admin area, client will receive a new version

Let me know if something not clear with and I will provide you with more info. 

Thanks den, 

so to be clear the update folder in the plugin will be updated by oxwall server?  

I am asking because inside the update folder for other plugins i have noticed there are sub folders inside the update folder.   Those subfolders are created by oxwall update server or by the developer?

They should be created by developer. Each subfolder could contain update.php file with any update instructions (if necessary), like sql queries. 

You will have to create a new subfolder with new version number in case when your plugin's update requires to execute any sql statements during the plugin's update. 

ahhhh ok thanks Den :)