There are pretty clear reminders. If you log into the Wordpress control panel, there's a bar that says "The latest version is x. Click here to upgrade." And they also built an automated update script that downloads, unpacks and installs it all for you.
My guess is that people don't update because they fear potentially breaking their styles or something.
If you make a small change to the style you're using, it gets overwritten on each update as long as it's a built-in style. The workaround is obvious (rename your changed style) but, as an example, I have always been too lazy to do this and I'm always behind the latest version.
You should check out "child theme" functionality, which allows you to make lazy changes to the style without modifying any core files, which is highly recommended against.
You're probably right, but if Wordpress checked out "automatically branching a child theme every time I use the interface Wordpress itself provides me with to modify core files" functionality, it would be more usable.
My guess is that people don't update because they fear potentially breaking their styles or something.