Any changes you make to the files on the server will be lost during updates.

css changes can be made in the custom css field in the admin panel. Changes here will not be lost during updates.

Keep note of your changes in something like a Google Docs Spreadsheet, note down everything you change (files, and what inside of the files as reference). I understand it's more work you might not want to do, but as @Darryl said, it'll be overwritten during upgrades.

There are a lot of sources online you can use to view the difference between two files. So, say you're upgrading your theme but you made changes to the files: note down the files, open them in a difference report, and add anything that needs to be added from the upgrade.

If you don't want to do that every time you upgrade, then it's best to use the options that Oxwall gives (the custom CSS field in the admin panel, etc).

.... :-( Damn! Hoping there was an easier way. So far I have kept a back up of the ow_static/theme/THEME folder and just reupload it after updating.

if a plugin or theme is update the right way with update folder
then it will not overwrite everything 
but working out how to update the right way is hard and there no doc on how to do it 
so most 3rd part plugins are just full plugins with the upates so everything is revert back