Remote Upgrade via UART on Cyclone III

The PFL Megafunction is useless when not operated through JTAG. You have to provide the flash programming function in your application. I assume, that the UART and flash related complex operations can be most easily performed in NIOS II code.

As far as I see, Altera hasn't remote update tools that are utilizing other interfaces than JTAG. So you have to define a download protocol and create a download application. Of course common binary file transfer protocols as X/Y/ZMODEM or hex-coded files can be used.

Regarding your second question, I assume that the Remote Update Megafunction should be able to perform the said reset. But UART upgrade performed in factory image implies that it contains a NIOS II design to serve the UART.