Dare has posted a great summary of the differences between theory and practice. Theory, as espoused by the Atom spec:

The "atom:updated" element is a Date construct indicating the most recent instant in time when an entry or feed was modified in a way the publisher considers significant. Therefore, not all modifications necessarily result in a changed atom:updated value.

There are two problems with this theory. One, as Dare notes, is that there are no mainstream tools in existence that allow a poster to mark an item as updated (such that the Atom flag would get ticked). Second, "updated" is fuzzy. Fixing a typo happens a lot - do users really want to be flagged every time that happens? I've learned from feedback that the answer is no. On the other hand, an actual update with actual new information would be nice to flag. Sadly, as dare notes, it's not easy to do that with existing tools.

Theory and practice often collide, and that messy collision area is where developers live.