As updates are deployed to the Dynamics 365 service, there are two separate versions that are tracked:
Application version represents the binary version that is deployed to the Dynamics 365 servers. These updates contain product improvements and bug fixes that are delivered through application code changes.
Database version represents the version of the organization’s database. These updates contain customization changes to support new features, product enhancements, and bug fixes.
There are two primary scenarios where the App Version and DB Version will not match.
What should I do when the versions do not match?
As described in the scenarios above, it's entirely normal for the App Version and DB Version to occasionally differ. The application is built specifically to support compatibility with previous database releases, so mismatched versions are generally (except very rare scenarios) not a cause for concern.
- Vinay Singh