[sql-server-2005] How to update data in one table from corresponding data in another table in SQL Server 2005

If the two databases are on the same server, you should be able to create a SQL statement something like this:

UPDATE Test1.dbo.Employee
SET DeptID = emp2.DeptID
FROM Test2.dbo.Employee as 'emp2'
WHERE
   Test1.dbo.Employee.EmployeeID = emp2.EmployeeID

From your post, I'm not quite clear whether you want to update Test1.dbo.Employee with the values from Test2.dbo.Employee (that's what my query does), or the other way around (since you mention the db on Test1 was the new table......)