How do I update my Macbook air?

An update takes an existing macOS to a slightly higher step.

The companion link which suggests how to do that is above.

While an Upgrade requires a new or newer system download

installer, to be installed from Apple servers; a much larger file.

And this would bring the macOS system to a later full number.

The system number shown in your post, says macOS 10.12.x Sierra.

A next full system series, would be High Sierra 10.13.6 &/or beyond.

• How to get old versions of macOS - Apple Support

https://support.apple.com/en-us/HT211683