I think the widget is updated automatically once you start following a new blog. To follow a blog, go to its page and click on the “Follow” button on the left of your user topbar.
Also, if you want the widget to show images instead of text, go to the widget and click on “Grid” as the Display instead of “List”. Here’s the support page: http://en.support.wordpress.com/widgets/blogs-i-follow-widget/
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