When importing a managed solution, a decision is required to either upgrade or update the existing solution.
Upgrades are intended for deploying significant changes, like new features, structural changes, or adding new tables.
The ‘Stage for Upgrade’ option allows the installation of the new solution without removing the existing solution, reducing risk. Once proven, the staged solution can replace the existing version. Alternatively it can be removed, rolling back to the previous version.
An Update is intended for small, incremental changes to a solution, such as adjusting settings, amending the UI, or fixing minor issues.
The version number of the imported solution is defined when the solution is exported from the source environment. For details on the versioning of solutions, see my post: Solution Version Numbering.
Lets look at upgrades and updates in more detail.