How do I update the background image?

Upload the new image in the images folder in your theme editor
(To upload the image, click on quick links in the blue admin bar>theme editor>media>images and click the little plus sign)
Next you will change the block of CSS in the file named "styles.css" in your theme editor (also located under the media heading)
Below is a screen shot of the block of CSS where the background image can be changed.  
There are THREE places where you put the name of the file in blue.
On the attachment there is a red arrow pointing to a file name. ONLY this file name needs to have the following format:

The "." is a MUST for this portion of the CSS.