If you are not proficient at using a file manager on your computer/phone, do not try the manual update or installing Flash. There have been a LOT of people screwing up their phones trying to do it.
If you know what you are doing, download the update to your computer, transfer it to your phone's SD card (in the root directory, not in a folder). Most everyone uses Astro File Manager on their phone to access the file system. Open Astro, go to the root directory and make sure the file is named UPDATE.ZIP If it is, follow the directions on Droid Life to do the update.
Once you have Froyo 2.2 running, you can download the Adobe Flash .apk file to your download folder on the SD card. Once it is there, using Astro, just tap on it once and Astro will pop up and give you two choices of what to do. Choose Open in App Manager, then tap again to install. Flash will be runnning in the browser.
Like I said, if you are NOT compfortable digging around in the file system on your computer/phone, just WAIT for the OTA notification and it will be done automaticaly. You can then either wait for Flash with the next update, coming in a week or two, or go to Droid Life and follow the instructions above.
Link to Droid Life: http://www.droid-life.com/2010/08/03/manual-android-2-2-update-for-motorola-droid/
I did the manual install on my phone, and you can go into settings and choose Tethering, Until the next update comes out at the end of the month, we won't know whether It will still be there or not. 
