If I update to FCPX 10.0.7 what happens to my old projects?

How far is this project from being finished? Do you need the features in 10.0.6/7?

Nothing happens to the project, other than that the format is updated for the new version.

A backup of the old version is made automatically when you update the projects and events. It's in a folder called Backup.

The old project can be opened in 10.0.5, but of course will not contain anything done in a later version.

Each Event and Project is a mini-database. As new features are added, those databases must be updated to recognize and deal with the new code. Once updated, the Events and Projects are NOT backwards compatible.

Your idea of backing up everything is right on the mark. Here's the info you're looking for.

http://support.apple.com/kb/HT5550

Then now would be a perfect time to update.

Shut down the new version. Move the backups into the event and project folders. Open the old version of the software. I keep the old versions of the software on another drive. They can open and run from there, though this isn't the SOP.

I zip it yes, so I can't open it accidentally.

I misspoke, not Backups, Old Versions.

Your event folder looks like this

There's a current version and there's an Old Versions folder. The old versions were made with the last versions of the app you used. To get back to the old version you swap your CurrentVersion for the old version you want and launch the old version of the app. If you launch the new version of the app it will want to update the event database.