Apologies if you already know any of this, not sure of your level of knowledge. A word of caution: if you are not familiar with delving into Linux related stuff, then it may be better to wait for the released version. This is beta software and things can go wrong, making matters worse. If you are comfortable with doing this update, please do, but at your own risk.
When you connect via USB you just connect the hard drive to the PC as a normal external storage device. This method does not allow you to see any of the internal storage areas, it is just for adding media or for helping restore a Slice using special software. It is not network connected.
You need to connect to the Slice, booted normally. I use WinSCP, login as root, password openelec or libreelec depending on your software version. Looking at the status / info screens in Kodi will tell you the IP address.
the update folder is a hidden directory (prefixed with a . (dot or full stop)). It is located at: /root/storage/.update
Just copy the .tar file to the .update directory and reboot. The boot process detects the .tar file and updates the Slice. Note: after the update and subsequent reboot, I find that the hard disk is not found. Just power down the system and remove the power connector, wait a few seconds and then apply power, the hard disk will be found and all the media will be present.
Hope this helps