Ipstenu has written an interesting article “How The WordPress Upgrade Works”
Ipstenu says “There are two kinds of automated upgrades for WordPress. The main ‘core’ upgrader and then the ‘child’ upgrades used for themes and plugins. They behave differently.” and goes on with a detailed explanation.
The author also reminds WordPress self hosted users to back up database and your files before upgrading.
Full article: http://code.ipstenu.org/2011/how-the-wordpress-upgrade-works/