All of the above. Improvements are made, new features added, bugs stomped out, code cleaned up. You don't always have to update after each new nightly is release. You can skip one here and there. After the nightlies comes the stable builds, then finally the Release version.
Personally, I stay away from nightlies on my main phone as I need it to work perfectly and keep my data for work. The nightlies do always bring bug fixes, etc but can also bring new bugs as well so it's always a risk.