The OTA mechanism itself is perfectly functional in principle, but due to an oversight of mine over a year ago regarding stable versions, the newer versions aren't being detected properly as new atm.
But yes, in fact all the OTA update does is download new files to overwrite.
The only big difference with overwriting the files yourself, besides convenience, is that it uses something called zsync to minimize the download. Large parts of the program tend to stay the same, so they often don't need to be updated.