Can CASE statements be used in an UPDATE query?

Yes. CASE is an expression, so it can appear anywhere a value is expected, including the SET clause of an UPDATE. It is the standard way to apply different values to different rows in a single statement.

UPDATE employees
SET    salary = CASE
         WHEN performance = 'excellent' THEN salary * 1.10
         WHEN performance = 'good'      THEN salary * 1.05
         ELSE salary
       END
WHERE  department_id = 10;

Always write the ELSE

This is the trap. CASE without a matching WHEN and without ELSE evaluates to NULL, and SET salary = NULL will happily wipe the column for every row that did not match. Here ELSE salary assigns the existing value back, leaving those rows unchanged. Omitting it would null out the salary of anyone whose performance was 'average' or NULL.

WHERE and CASE do different jobs

The WHERE clause decides which rows are touched at all; CASE decides what value each touched row receives. Rows outside WHERE are never written. Narrowing WHERE is also the efficient choice, because rows excluded there are never read for update, whereas rows that hit ELSE salary are still rewritten — generating write-ahead log traffic and dead tuples for an update that changes nothing.

You can avoid that by excluding non-matching rows up front:

WHERE department_id = 10
  AND performance IN ('excellent', 'good');

Updating several columns

One CASE per column, all in the same SET:

SET salary = CASE WHEN performance = 'excellent' THEN salary * 1.10 ELSE salary END,
    band   = CASE WHEN performance = 'excellent' THEN band + 1      ELSE band   END

When to reach for something else

If the new values come from another table, a join-based update is clearer than a long CASE ladder — UPDATE ... FROM in PostgreSQL, MERGE in Oracle, SQL Server, Snowflake and BigQuery. MERGE also handles inserts for keys that do not exist yet.

In the interview, also mention wrapping any bulk update in a transaction and running the equivalent SELECT first to confirm the row count.