When clicking update theme, does the cloned version get updated?

No, each cloned version of the theme in your account won't get updated or overwritten.

Up until very recently the only way that a theme could be customized at the code level is by creating a cloned version of the theme. Original theme files are uneditable at the code level.

To safeguard those code-level edits and ensure they don't get wiped out, none of the files will be overwritten when the update is installed.

Enter "Child themes"

Having to choose between being able to customize a theme or receive updates to a theme sucks. HubSpot has been aware of this issue and very recently (quietly) released the concept of "child themes." You may not have heard of it yet as it's very new.

Basically, a "child theme" gives you the best of both worlds.  Customizability and theme updates.

If you're curious about how to set up a child theme, I have a full step-by-step tutorial here.