Q:

Is there a way in PostgreSQL to automatically set the time a record was updated?

Is there a way to set the time a record was updated in the table's definition, in the same way the setting the default value to NOW() function is used when the record is inserted?

A:

Your best option here is a trigger.  Here's a simple option, self-contained:
CREATE TABLE triggertest (
    id serial,
    test text,
    last_modified timestamp default now()
);

CREATE FUNCTION update_last_modified() RETURNS TRIGGER
LANGUAGE PLPGSQL AS
$$
BEGIN
   NEW.last_modified := now();
   RETURN NEW;
END;
$$;
CREATE TRIGGER update_timestamp BEFORE UPDATE ON triggertest 
FOR EACH ROW EXECUTE PROCEDURE update_last_modified();

insert into triggertest (test) values ('test');

select * from triggertest;

This returns:
 id | test |       last_modified        
----+------+----------------------------
  1 | test | 2013-02-16 17:30:41.678707
(1 row)

For our update test:
  update triggertest set test = 'another';

  select * from triggertest;

This returns
  id |  test   |      last_modified       
 ----+---------+--------------------------
   1 | another | 2013-02-16 17:31:38.1126
 (1 row)

