How can I update the software on my Motorola Defy?
Are you referring to the OS update?If yes then -
If you want to update the apps then go to Google play store app(Market previously) and there you can see the available updates which you can download by tapping on it and granting permissions to download it.
Offically Motorola, as far as I can tell, only supported to Android Eclair (2.1), and they have instructions for the upgrade here: http://direct.motorola.com/hellomoto/support/update/
Unoffically, it can be upgraded to 2.3 after rooting the phone... but it is not recommended. If you are considering this route, http://www.cyanogenmod.com/devices/motorola-defy
Also Videos on the subject: http://www.youtube.com/results?search_query=Defy+root+2.3&oq=Defy+root+2.3&aq=f&aqi=&aql=&gs_l=youtube-psuggest.3...831.1747.0.23188.8.131.52.0.0.0.0.0..0.0.