Does Titanium Backup's update.zip restore all apps AND data? I was unable to find clear documentation of what goes into an update.zip created by TB.

Can I use TB's update.zip to restore all of the apps along with their data?  If I understand correctly, this would enable me to flash a new ROM with full wipe, then restore all the apps at the push of a button.  Do I understand correctly?
No, the update.zip does not restore all your apps. The purpose of this is to allow you to install Titanium Backup as a user or system app while in the recovery bootloader. You would wipe your phone, then install a custom rom (as usual), and afterwards would install Titanium Backup.

This is to greatly simplify restoring your system data. Normally, you would have to boot the new rom, sign into the google play app, download TB, then run a restore. This way, you can simply open TB as soon as you boot and restore everything, including your google accounts and wifi passwords.