An ESP doesn't "Talk" USB, only serial, and to program an ESP it's neccesairy to hold GPIO0 low while resetting it.
To do this automatically: instead of the user having to press a flash- and reset-button on the board, the DTR and RTS lines of the USB to serial convertor are "Misused" to accomplish (and automate) this task.
OTA doesn't need all this stuff, since the software update process is all done by the ESP and the OTA-compatible firmware already present (so you first need to have previously installed OTA capable firmware).
Basically what OTA does is, when activated, downloading the image of the new firmware and storing it in a different partition in flash memory, when succesful, the ESP will reset itself in software and at boot will copy the new firmware to the first partition (and overwriting the original first firmware).
Take a look at this website for more information on the OTA process and requirements.
I don't know if you realize that the circuit you show still requires a USB to serial adapter (like FTDI ) or any other one you normally use, as QuickFix mentions you cannot directly connect RX &TX to your computer and DTR + RTS.
Auto reset just means that you do not have to manually pull your pins low or high before flashing ESP8266 as we had to do before long time ago, which was a pain but fun. Now it is more like the Arduino (which by the way still have USB to serial adapters built in )
Good resource: https://bbs.espressif.com/viewtopic.php?t=1998