I can only tell you the method I use which is to usually update it manually giving my best opinion of a fair market value at the time after examining market conditions. (I run a script when I know I wont be available to update it.) The main reason I do this is I see most of the other witnesses using a script and I want to maximize diversity in the method for the reasons I described. I can't speak to the specific methods that others use.
As far as why it is important, it is used for two things. One is the awarding of SD author rewards. Half the Steem paid out from the reward fund is converted to SD using the feed price. The other is the "Convert SD to Steem" operation, which converts on demand using the feed price one week later. (Most people should not be using the latter, by the way; it is intended to be a part of the inner workings of the pegging mechanism to be used, if at all, by expert traders when necessary. In my opinion it is a mistake that it is even available on the web site, and certainly that it is highly prominent where many have chosen it by mistake.)
EDIT: Also dollar values displayed on the site use the price feed as an exchange rate, but that is somewhat arbitrary. The blockchain operations using it are more critical.
@kenny-crane: "I guess on the weekly power down from Steem Power to Steem...the price feed does Not come into play, because we just get an amount of Steem credited to our account that is equal to 1/104 of the amount we chose to power down."
Correct, the price feed does not come into play there
Thanks again for this helpful information, which I think is new to the newer and even moderately experienced steemian!
Good point about the SD to Steem ability here on the site not being the best choice for many, at this point in time.
I guess on the weekly power down from Steem Power to Steem, when we all decide to do that (we do probably want to take some money out of here eventually, although now is probably a good time to power UP!) -- the price feed does Not come into play, because we just get an amount of Steem credited to our account that is equal to 1/104 of the amount we chose to power down.
Great answers, which increase the value of a great article!