If the Update groups upon sending option is selected when a Campaign is scheduled, the Include new contacts added to groups option will also be selected automatically.
With these two options enabled, the system will check for any new contacts that have been added to the group(s) selected since the time the Campaign was scheduled and add them to the Campaign distribution prior to sending. Any individual contacts that were selected outside of those groups will also remain as recipients on the Campaign.
If all three of these options are selected when a Campaign is scheduled, at the time of sending the system will remove all recipients from the Campaign and add back only the group(s) that were selected at the time of scheduling.
This means the system is able to ensure the most up-to-date records. However this also means any individual contacts that were selected outside of those groups will be removed from the Campaign as recipients.
In other words, at the time of sending contacts must be included in one of the group(s) that were selected at the time of scheduling in order to receive the Campaign.
You can also turn one or both of these options on by default for all new Campaigns under Settings > My Settings > Email > Sending/Exclude.