Microsoft has released an upgrade chart to display the options you have for installation when upgrading to Windows 7.

The chart is a good visual for those who just want to jump straight to the answer for their desired path.Custom Install basically means that you must install the operating system from scratch. If you run the  installation when already booted into Windows and choose a system drive for installation, the wizard will ask if you want to move all the files on the existing partition to a new folder called Windows.old. 
 

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