No data/files should be deleted when you update the iOS.
If you have an iPad 1, the max iOS is 5.1.1. For newer iPads, the current iOS is 7.0.4. The Settings>General>Software Update only appears if you have iOS 5.0 or higher currently installed.
You can no longer update to iOS 6.x, or down grade the iOS.
iOS 5: Updating your device to iOS 5 or Later
How to install iOS 6
iOS: How to update your iPhone, iPad, or iPod touch
If you are currently running an iOS lower than 5.0, connect the iPad to the computer, open iTunes. Then select the iPad under the Devices heading on the left, click on the Summary tab and then click on Check for Update.
Tip - If connected to your computer, you may need to disable your firewall and antivirus software temporarily. Then download and install the iOS update. Be sure and backup your iPad before the iOS update. After you update an iPad (except iPad 1) to iOS 6.x, the next update can be installed via wifi (i.e., not connected to your computer).
Tip 2 - If you're updating via wifi, place your iPad close to your router to preclude getting a corrupted download.
How to Upgrade to iOS 7
The iOS 7.0 update requires around 2.5 GB of storage space, so if your iPad is almost full, you may need to clear up some space. You can check your available space in Settings -> General -> Usage.
There are two ways to upgrade to iOS 7: You can use your Wi-Fi connection, or you can connect your iPad to your PC and update through iTunes. We'll go over each method.
To upgrade using Wi-Fi:
Note: If your iPad's battery is under 50%, you will want to plug it into your charger while performing the update.
- Go into the iPad's Settings.
- Locate and tap "General" from the menu on the left.
- The second option from the top is "Software Update". Tap this to move into the update settings.
- Tap "Download and Install". This will start the upgrade, which will take several minutes and will reboot your iPad during the process. If the Download and Install button is grayed out, trying clearing up some space. The space required by the update is mostly temporary, so you should gain most of it back after iOS 7 is installed.
- Once the update is installed, you may have to run through the initial steps of setting up your iPad again. This is to account for new features and settings.
To upgrade using iTunes:
First, connect your iPad to your PC or Mac using the cable provided when you purchased your device. This will allow iTunes to communicate with your iPad.
You will also need the latest version of iTunes. Don't worry, you will be prompted to download the latest version when you launch iTunes. Once it installs, you may be asked to setup iCloud by logging into your iTunes account. If you have a Mac, you may be prompted on whether or not you want to enable the Find my Mac feature.
Now you are ready to begin the process:
- If you upgraded iTunes earlier, go ahead and launch it. (For many, it will launch automatically when you plug in your iPad.)
- Once iTunes is launched, it should automatically detect that a new version of the operating system exists and prompt you to upgrade to it. Choose Cancel. Before updating, you will want to manually sync your iPad to make sure everything is up to date.
- After canceling the dialog box, iTunes should automatically sync with your iPad.
- If iTunes doesn't automatically sync, you can manually do it by selecting your iPad within iTunes, clicking on the File menu and choosing Sync iPad from the list.
- After your iPad has been synced to iTunes, select your iPad within iTunes. You can find it on the left side menu under Devices.
- From the iPad screen, click on the Update button.
- After verifying that you want to update your iPad, the process will begin. It takes a few minutes to update the operating system during which time your iPad may reboot a few times.
- After updating, you may be asked a few questions when your device finally boots back up. This is to account for new settings and features.
Just a little warning as mentioned in the previous answer, you can NOT go back to iOS 6 after upgrading.
There are still many people who don't like iOS 7 at all and are extremely disappointed.
iOS 7 might have nice features but on Ergonomics it's the worst OS experience ever.
Therefore check before upgrading and know there is now way back.
Best regards, Gerard.