The games is a collection of files (executables, images, texures etc).An installer copies a set of files from the CD to specific locations on the PC. When you run the installer for the update, it adds or/and replaces files in the game location. So you will install for example Rise of nations (the files will be copied to your PC). When you will install an extension like Thrones and Patriots, it will replace/add the files to the current Rise of Nations path.
Hope that this answers your question.
Modern games don’t really play directly from the media they come on anymore, but usually get installed on the PC’s or consoles local storage. Since all modern gaming machines are connected to the internet that locally installed stuff can be modified.
In theory since an update or patch only will affect a small percentage of the data, this should take much less time than downloading the whole game, in practice sometimes developers don’t always care about this sort of thing.
Assuming the game is actually run from some read-only storage like an optical disc (as other comments point out, many games today don’t actually run live from the disc), patches can be installed to the device’s local storage, the software is designed to prefer reading files from that storage instead of the removable media.
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