Carrier updates are used to help your iPhone and iPad communicate with the carrier network. These files typically contain information concerning voice networks, cellular data, voicemail settings, personal hotspot, and any other service your carrier provides. For example, with the recent AT&T visual voicemail issues on iOS 7, the only way for it to be fixed is through a carrier update, since it’s part that makes iOS and your chosen network play nicely together.
This is why people that frequently switch between carriers by swapping SIM cards may receive carrier updates more often than people who keep their SIM card in just one iPhone. For example, if you travel and your iPhone 5s is unlocked, you can simply replace your AT&T SIM with a 3 UK SIM or any other international sim card you’d like. More often than not, the international carrier will push an update to your iPhone so it talks to the network better.
When prompted to install a carrier update, It’s never really explained what the update is going to do and you only really see it when you are upgrading your phone or replacing your handset but feel free to install it anytime you are prompted to do so.