There are 3 states an Android phone can be in: Awake, Asleep and Off. See: Android: Sleep stages/levels on an Android device?
In sleep mode screen goes off, CPU shuts down along with Wi-Fi and GPS radios. See: http://developer.android.com/reference/android/os/PowerManager.html and Android Sleep/Standby Mode
But GSM or CDMA radio still works and the device can receive incoming calls, SMSes, and IP packets. Also, Google introduced new Google Cloud Messaging service that sends data to devices and can, as I understood, wake the device if necessary. See: http://developer.android.com/guide/google/gcm/index.html
So, my question is: can application on Android device be updated via Google Play if the device is in sleep mode? I mean is Google Play allowed to receive some kind of messages from the cloud, wake the device and update applications? I assume that the application is allowed to be updated automatically and can be updated through mobile network (3G/4G).
Thank you.
UPDATE: I did some research and it happens that Nippey's answer and comments are correct. I did not see any updates to wake my device but as soon as the device is awake updating mechanism starts to work normally. So, theoretically, Google Play Store can start updating your applications right after the device wake up.