1

Like every other unit in the game, the supply unit can be upgraded. However, the armor of the unit doesn't appear to increase with level, and, at $25, the cost seems significantly lower than that of other units. So what does upgrading the supply unit do, other than to add a star to the unit?

2

It changes the ability it produces.

0 star: Repair (every 5 kills)
1 star: Smoke screen (every 6 kills)
2 star: Decoy (every 7 kills)
3 star: Air strike (every 8 kills)

It's so cheep so you can simply choose which you want. Note that the better abilities require more kills to produce

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