Let me explain a bit how the "enablement stack" model works for 12.04 and subsequent releases.
A problem with LTS releases was that hardware support became "frozen" to whatever the LTS kernel supported. However, a lot of new hardware may come out in the 2 years between LTS releases, and while this new hardware is added to non-LTS releases, there was no official mechanism to "backport" this support to the preceding LTS release.
The "enablement stack" model works as follows. When a new stable version of Ubuntu comes out, its kernel and graphics driver stacks get "backported" or packaged for the preceding LTS. This enables people using that LTS to upgrade only the kernel and graphics drivers and enjoy the added hardware support (and other features, maybe, as the kernel also gets new goodies all the time) of the most recent Ubuntu release.
For instance, 12.04 received:
- The 3.5 kernel from Ubuntu 12.10 with the 12.04.2 point relase/stack.
- The 3.8 kernel from Ubuntu 13.04 with the 12.04.3 point relase/stack.
- The 3.11 kernel from Ubuntu 13.10 with the 12.04.4 point relase/stack.
- The 3.13 kernel from Ubuntu 14.04 with the 12.04.5 point relase/stack.
In addition to providing new hardware support, this allows Canonical to consolidate support resources: as you noted, once an LTS is released (in this case, 14.04), its kernel gets backported to the previous LTS release (12.04) and that enablement stack will continue to be supported for the remaining 2.5 years before 12.04 ends its life.
This way, 12.04 users benefited from hardware support upgrades until a new LTS is available (14.04). At that point they can choose to continue with 12.04 (no additional hardware support, though it will receive security updates), or upgrade to 14.04.
Another rationale behind not adding new hardware support to 12.04 is that, if you buy new hardware and are installing from scratch, you may as well install 14.04 which is the most current LTS.
How does this effect the software/kernel/OS update, patch, and
development cycle of Ubuntu 12.04 LTS?
As I mentioned, 12.04 will continue to receive security and other critical updates. However, only the 3.13 kernel for 12.04 will be upgraded; older kernels will not receive any more upgrades, so you really should update to the latest kernel. This is usually safe to do, as those kernels are very well tested. The rest of your applications and software stack stay the same and continue to receive updates until 2017.
Is Ubutnu 12.04 Still in service until 2017, such as it was that last time I checked?
Yes, it is, and it will continue to receive security updates until then. Note however, that there will be NO new "enablement" stacks; so the hardware support provided by the 14.04 enablement stack will be the last update it will receive. This means that 12.04 will probably not support new hardware that may come out.
Is there any reason to upgrade our machines to 14.04 LTS, or should be just wait until 12.04 LTS is no longer supported?
That's the whole point of the 5-year LTS support cycle. You can keep your hardware and 12.04 installed on them until then, no problem.