(Brent, maybe some pictures?)

To upgrade your binary installation, the first thing you need to do, if you haven't already, is define your GEOSERVER_DATA_DIR, environment variable which is the directory that contains your configuration information.
(Brent, if you figure out how to set this automatically, then just tell users to check that it's there).

For an upgrade it's probably best to move your data directory to a new location, such as your home directory. If you're upgrading from 1.3.0 RC7 and later, you just need to copy the conf/ directory from your geoserver installation directory to the new location. If you're using pre 1.3.0-RC7, then see Creating a new Data Directory. Then set the GEOSERVER_DATA_DIRECTORY environment variable to point to it.

In Windows this is in Start -> Control Panel -> System -> Advanced -> Environmental Variables. This will show a list of the variables, and you can add a new one, or edit an existing one. (need pictures)

In linux on a bash shell you can look up the environment variables with a call:
echo $GEOSERVER_DATA_DIR

And you can set it with 'export GEOSERVER_DATA_DIR=/home/cholmes/gs-conf'

Now that you have the data directory defined, all you need to do is install the new version of GeoServer, and it will default to your environment variable for configuration.