It simply updates your system to Win10. Basically as part of the windows update service. I'd strongly advise you do a clean install of Win10 rather than using the 'upgrade' function though as although its not bad, its not perfect.
The free Windows 10 upgrade from Windows 7/8/8.1 has now officially closed. You now have to buy a copy of Windows 10 unless you meet some rather vague 'assistance' criteria.
If you'll run an upgrade function through windows updates then you'll get notified before downloading windows 10 about PC's compatibility with its apps & drivers compatibility/updates.