Ever since the beginning, Android OTA updates have worked by patching each file on your system partition individually. With Lollipop, that is all changing, and it has some important implications for those who like to root and mod their devices.
Here's what a pre-Lollipop update script looked like:
As shown, the recovery looks at this, finds each file, checks its signature, then applies a patch to it if it matches. This is the slow way of doing things, but it had a big benefit for rooters and those who like to mod their devices.