I did not know the answer to this question either, so I did the following detective work based on the clues:

1. I searched the master branch of the repo for the string "software should be updated". I found it in /Zotlabs/Module/Admin.php.
2. Line 133 of this file compares the current version to a variable $vmaster to issue the message.
3. The $vmaster variable is set by a function called "get_repository_version" a few lines above. This function is defined in /include/network.php like so:
function get_repository_version($branch = 'master') {
    $path = "https://raw.githubusercontent.com/redmatrix/hubzilla/$branch/boot.php";
    $x = z_fetch_url($path);
    ...
}
This shows that Hubzilla is checking the latest code version hosted on GitHub and comparing that directly to your running version. If they differ, it issues the update message in the admin panel.

The changelog is manually maintained, and completely by Mike and Mario I think. If you look at the commit history (you can browse it on GitHub), you can see that Mike made several commits since the previous stable version, and none of the files changed lists include the CHANGELOG file.