Software Upgrade is to ...well...upgrade the software. If you are on say software version 2.6.2 and the newest release is 3.5.2, you download 3.5.2 and upgrade the unit.
Backup/Restore is to backup and restore settings. Once you have a unit programmed the way you want it, you save it as a "backup" file. If you have to replace the unit in the future, you take that file and "restore" all of its settings to the new unit.