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Source
Basic Description
General Distribution Release
GDR packages contain only security and critical stability issue fixes. These are usually released via Windows Update.
Limited Distribution Release
LDR packages contain "other" fixes that have not undergone as extensive testing, and resolve issues that only a fraction of the millions of Windows users might ever encounter. You usually request these from the Microsoft website but they're mostly found in SoLoR Updates.
Quick Fix Engineering
QFE is the old name for LDR (above).
How are they installed differently?
At the end of the day, if you have LDR/QFE Mode enabled it will install LDR Mode if the update has that option regardless if its cab or an msu file.

MSU Files
*.msu files will get installed normally using the command below.


pkgmgr.exe/norestart /ip /o:"C:\W7T\Mount;C:\W7T\Mount\Windows" /m:"UpdateLocation\update.msu" /quiet

If you have LDR/QFE Mode enabled then the *.cab file is extracted and the below (CAB Files) method is then applied to the newly extract cab file.
CAB Files
Normally *.cab updates have a file called 'update.mum' but LDR updates also have a file called 'update-bf.mum', if the 'update-bf.mum' is not detected W7T will install cab files normally. Cab files are usually extract from the msu file or when a user has used 'MSU to CAB Converter'


pkgmgr.exe/norestart /ip /o:"C:\W7T\Mount;C:\W7T\Mount\Windows" /m:"CABLocation" /quiet

If, however the update-bf.mum has been located it will extract the cab to a temp folder and install both *.mum files like so:


pkgmgr.exe/norestart /ip /o:"C:\W7T\Mount;C:\W7T\Mount\Windows" /m:"ExtractCABTemp\\Update.mum" /quiet
pkgmgr.exe/norestart /ip /o:"C:\W7T\Mount;C:\W7T\Mount\Windows" /m:"ExtractCABTemp\\Update-bf.mum" /quiet

That's it.
Full Description