Hi Jagdish,

The concept behind records in context being read only is during the after update/insert trigger events. A runtime error is thrown when trigger.new context records are updated due to the fact 'these' records are read only. Its perfectly safe to update records in the before update trigger event.
In the above example, we are in the before insert trigger context and as such the record isn't created yet. You should be able to change the fields here. The created record is 'not' read only as its still in the 'before insert' context.
The error message shall come in to effect when you do the same operation in the after update context because as the event name suggests, after update trigger fires 'after the record has been updated in the database' and as such all such records are read only. You will get an error if you try to update trigger.new fields directly in after update trigger.

As you titled your question to be conceptual understanding - let me tell you that you can update fields in after update triggers as well (but this is bad design, please remember that)... confusing? I know.. :)..
This is possible only when you freshly query such records from the database without depending on the trigger.new context. As its a freshly queried record, you are out of the trigger.new context. 

Hope the above makes sense. Please let me know for more queries. If not, please mark this as the answer. :)