Updating the CKeditor library in Drupal after Version 7.14?
Yes.

Libraries should not be store in module directories for the reason that it makes it harder to update things.

Best practice is to install the Libraries API module and put the library in sites/all/libraries (or an equivalent libraries directory if you're using an install profile or something).

CKEditor and a lot of other modules integrate with the libraries API module.

The CDN option that is referred to in your quoted text is different though. In that case you don't need to have the CKEditor plugin anywhere in your website files.
Instead the module will use a copy of the library from the CDN.

It's possible there could be performance implications from not using a local version but I haven't actually tested that.