According to BOL

Forces a re-read of data and an update of dimension attributes.
Flexible aggregations and indexes on related partitions will be
dropped. For example, this processing option can add new members to a
dimension and force a complete re-read of the data to update object
attributes. This processing option is supported for dimensions and
mining models.


Means if I update dimension then will it drop index and aggregation?
If aggregation is dropped then will it effect on performance of cube
or not?
How can I regenerate the aggregation ?

When you do a process update on a dimension with flexible relationships
the aggregations should be dropped AND recomputed automatically. So
basically what BOL is telling you is that Process Update may take some
time if AS has to re-calc all the aggregations in addition to updating
the dimension.

However, if you have configured your measure groups to use the
LazyAggregations processing mode there will be some lag time between the
dimension being upated and the aggregations being re-processed where the
cube may respond to queries more slowly than usual.

You can manually re-process the aggregations if you need to by choosing
the Process Index option when you process the cube. This will not
re-read any fact data, but will use the fact data it already has to
rebuild all the indexes and aggregations for the cube. But this should
not be necessary when you Process Update a dimension as AS handles it
automatically.

--
Regards
Darren Gosbell [MVP]
Blog: http://geekswithblogs.net/darrengosbell

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