The Upgrade function in the WordPress Tools menu enables you to bring up-to-date your WordPress installation.
You can install the most current WordPress version AUTOMATICALLY, by clicking on the specific button, or you can just download it to your computer for its later manual installation.
Any time you log in as an admin to your blog, WordPress checks your current WordPress version and, should this appear to be an old one, the Upgrade entry gets automatically invoked. You are then given the option of executing it immediately or not.