Generally, Word isn't excellent at dealing with relative links, so the program may lose track if the path of the linked document has changed.
I guessed that Word cannot perform that magic. But I cannot think of a change that doesn't involve that kind of magic, which Word would be able to update.
Especially I'm wondering about my recent experience:
I had a document with several links to files within the same folder as the document, in case of which Word doesn't include the path in the link. Suddenly, all links got preceded by C:\Users\Editor\AppData\Roaming\Microsoft\Word\
How does this happen?
What kind of change?
A change in the source document. If you change the source document, updating it will give the changes in the target/receiving document.
See also: Word Fields and Relative Paths to External Files