Welcome to the forum! 
I'd say, it depends on what you're upgrading, and to a lesser degree what phone your doing it to.
I only have (too much!) experience with Samsung Galaxy (because there have been zero
official 
upgrades), so that's my perspective for this post.
Some minor upgrades are a matter of basically unpacking a zip file that replaces some stuff. You might need to reboot, but then you're done and have your new features. Nothing else gets harmed. There's also an astonishing amout of customisation you can do by simply installing replacements for the home screen, the calendar, etc.
Other upgrades require a total firmware replacement. That's not as spooky as it sounds, there are very good tools for it but of course you need to pay attention to the instructions or you
may brick your phone. Common sense really. These types of upgrades
usually reset your phone's settings (installed apps, wallpaper, ringtones, preferences, etc) to factory defaults. The good news is that anything stored on the sd card(s) remains intact (unless you explicitly select the "format sdcard" option). That means two things:
- all your music and photos are safe. Phew!
- you have a convenient place to store backups of what's
not user data. There are many backup and restore apps that will help you re-customize your phone after a factory reset, and other apps that will help to restore your call logs and sms messages.
