When calculating the wound totals for the final battle there seems to be a discrepancy.

Either. . .

1) On page 23 in Sea of Blood it states that you are to add the conquest tokens earned in the Overlord's Keep to the total that have been accrued so far in the campaign. You then divide by 4 (for the heroes) and add them to their old wound total. So, for example: if the heroes earned 20 Conquest in the dungeon and has accrued 220 for the campaign, they would add 60 to their Wound total (220+20)/4.

or

2) However, in each overlord's keep it states that the new wound levels are determined by what the heroes earned in the keep. In the above example, it would mean each hero would receive 5 more wounds (20/5).

Which is the correct way of determining this? I assume it would be number 2. Otherwise, the overlord would end up with 600 + Wounds and it would make the upgrade of +15 Wounds almost worthless. Am I correct?

I think it would be option #1. In RtL the bonus health was based on only what the 2 sides earned in the keep, so they probably just copied the text over for SoB in the keep sections and didn't remember to update it. The SoB rules clearly state several times that the total conquest from the campaign is used to determine health from the final battle. I think they reset it when entering the keep solely to negate divine favor in the keep.

Yes, the +15 wounds upgrade is bad, but it is bad whether or not the OL has +600 wounds. +15 wounds is less than 1 swing from a gold weapon. Not all OL upgrades are created equal, just as there are some hero skills that are terrible.