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What is counted for the "update contact count" button and how are emails counted?

The "update contact count" button counts the selected list plus any emails entered into the manual box.  If you have entered in an email manually that already exists in a list, it is only counted once (and only counts for one email send) As far as how emails are counted for billing, any duplicates, invalid and obviously bogus addresses are filtered out of that total list ahead of time, so those do not count against your number of sent emails.