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At present, PuTTY pastes text when it receives a button-down event for whichever button is configured for paste. Normally in Windows, actions that are triggered by a click happen on the button-up event instead, and moving the pointer out of the control being clicked on before the button-up causes the action not to occur. xterm does something slightly different, in that it pastes on button-up, but doesn't seem to cancel if the pointer moves outside the window. (We've had one request for the cancelling behaviour.)
Update: In fact, (Windows) PuTTY used to paste on release, and it doesn't appear to be a deliberate change. Semi-bug? (It didn't have the "cancel" behaviour, though.)
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