The upstream kernels (referred, when we provide them, as mainline kernels) are simply the upstream kernel for the specified version, with a very few minor configuration changes added so that there is minimal issue using them on an Ubuntu Install.
The difference between these kernels and the one released for an Ubuntu version are numerous other configuration changes, source patches* and, in some cases, compiled in modules and hardware support.
Very little of the underlying code is different from upstream other than that noted above.
*: source patches are, in most cases, changes to the default behavior of the kernel. These are not limited to: blacklists, video quirks tables, built in modules, source changes that are not yet in Linus' tree or the stable queue quite yet etc.
Source patches are what the team uses to introduce configuration options that are required to support the vast array of released software for a specific version of Ubuntu. In many cases they are necessary for those applications to work properly. The fundamental difference between this and the upstream kernel is that the pure upstream kernel is not distribution specific.
Therefore, the configurations are not geared toward ensuring that certain applications work as expected. These configs exist to provide that level of changeability to the kernel for specific things. Additionally, the use of quirks allows us to identify hardware that requires specific things from the kernel that we can set once we detect them.
This is one of the major features of Linux and it is one of the reasons we have been able to run on so many diverse platforms over the years. There are times when the quirks and source patches cause issues between each other. During these times, we work to mitigate the problems with changes to underlying kernel behavior. In many cases these changes don't make it upstream until after the release due in very large part to the need to properly code the fix, document what was done, test the changes and conduct various other tests and stress testing.
In these cases, patches that are headed for upstream are carried as source patches in much the same way pre-stable and patches that are not yet in Linus' tree do. The link to the delta review spec should serve as a reference for what was reviewed for the current Natty release of the Ubuntu kernel.
Best Answer
Linux kernel Wiki
To understand an difference between Win vs Linux kernel
Ubuntu Linux kernel derives its kernel from the vanilla kernel d(using linux.git and stable branches) and builds its own version of supported kernel.
Modified kernel is a user requirement for building a custom kernel from the sources (either from upstream or ubuntu sources) for testing a new device driver etc.
GitKernelBuild
My 2 cents! Hope this helps.