Typical upgrade procedure would require you to install the new version over the existing one and it gets automatically overwritten by the new files.
Please ensure that when you install/upgrade the component, all the modules and plugins (if necessary,) will also be upgraded to the latest version. No data will be lost in the process except for Joomla module positioning.
Each component release will perform necessary database upgrade automatically during the installation.
When you upgrade to a new version, modifications done to the source will get replaced with new files. Therefore, you need to back up your source code, upgrade and repeat the changes to the new version. This procedure is same with any software upgrades.
Every Joomla extension has SQL upgrade script and not downgrade one. As a result, necessary database changes will be carried out during every ugrades. When you downgrade, the changes will be reverted which might result in malfunctioning of the system and we cannot support such cases.