There's is a huge confusion over the term Upgrade for Windows 7. The terms is used to describe the price variant as well as the term used in the installation process. Now if you buy the Windows Upgrade, you will get the Upgrade and Custom options during the installation. The Upgrade version can only be opted if you are already running Vista.

Choosing the Upgrade option carries your applications, documents, settings and user accounts over to the new OS. In case you are not coming from Vista, go for the Custom option which would ensure fresh installation. For the XP user who wanna migrate instead of wiping everything out and reinstalling, you can use Laplink's PCmover to get the same result as doing an Upgrade installation.

Remember even after custom installation your old filed will be preserved in a folder named Windows.old.