Did you see this? "wyUpdate says "You already have the latest version" when it isn't. What's wrong?"
Should I add all the source files (i.e. the entire project folder..which is over 300MB)
Store all your versions (not the source code, but the end result -- executables, dlls, assets, etc.) in their own separate folder. See step 6 in the step-by-step walkthrough..
copy those new .exe files to the Program files folder insider Wybuild on a new 1.0.1 build tab. I now click Build WyUpdate and a new client file is generated.
Ok. That's wrong. Move all the files that constitute version 1.0.1 to their own folder (again, step 6 in the step-by-step walkthrough). Then add those files into wyBuild.
Now What do I do with this client file? DO I add it to the 1.0.1 tab ?
If you're creating a 1.0.1 installer then include it in the installer. Otherwise you don't need to do anything with it.
and hit build update?
When you're releasing a new update, then yes, build the updates (also, upload them).