Observer Design Pattern - Concrete Subjects and Observers

From your picture, your "update()" method does not receive any information about the state of the Subject, so, if the Observer needs information about this state (as usual in the observer pattern), then it must retrieve it from the ConcreteSubject invoking to the "GetState()" method (not present in ISubject).

An alternative to this schema, would be to pass the state (or a reference to the whole ConcreteSubject) as parameter of "update()" method.

Other general explanations to having a reference to ConcreteSubject instead of ISubject can be that you may want to interact with the ConcreteSubject to invoke business logic (of course not exposed in the ISubject interface).

Just because the definition you read states subject holds a reference to the concrete observer doesn't mean you have to read it literally.

As long as the subject has a reference/link to the observer whether concrete or via an interface/class the statement remains true.

Its very common to see an interface on both side IObserver and IObservable. I think the issue you are going to find is that when you make subject abstract you are going to really have to try hard and find how to make your state generic.