Lets say a update is available for the kernel version x.
Does it mean following higher versions of the kernel will include that update?
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If you're running the generic Ubuntu kernel, then kernel updates flow in as part of normal system updates. After installing the update, the "old" kernel will still be in use until you reboot your machine.
Versioning is handled automatically - you don't need to worry about it. If you "miss" installing, say, update 15, and you install update 16, then that's fine - 16 includes update 15's changes.
The same applies for the upsteam Linux kernel: 3.5.2 includes 3.5.1's changes to 3.5.0.
In other words, each update is a "full" update, not a "delta" update.
The general advice for when to install kernel updates - when you want to. Bear in mind they require a reboot to switch over anyway.
If the update incorporates important security updates, then obviously it's more important; but nothing to get too uptight about. If you feel so inclined, you can keep on top of Ubuntu security notices here: http://www.ubuntu.com/usn