Microsoft launched a page that clearly explains how to upgrade your existing system in-place from a legacy Windows OS to any Windows Vista version.

In-place upgrade
You can upgrade in-place, which means you can install Windows Vista and retain your applications, files, and settings as they were in your previous edition of Windows.

Clean install
Upgrading to Windows Vista with a clean install means that you should back up your files and settings, and then install Windows Vista. After the installation is complete, you’ll need to reinstall all of your applications and load your backed up files onto your PC.

Depending on your current OS type and the type of Vista Edition you are upgrading to, you might require an in-place upgrade or a clean install which you can check on the page. Link

Via Neowin