Ben DeBow asks the tough questions:
An in-place upgrade involves upgrading the existing SQL Server to a newer version without creating a new instance. In other words, the new version of SQL Server is installed on the same server as the existing version, and the databases are upgraded to the new version.
On the other hand, a side-by-side upgrade involves creating a new instance of SQL Server and migrating the databases to the new instance. This approach requires more planning and preparation than an in-place upgrade but can be less risky.
Click through for the comparison. Historically, I’ve always been on Team New Build, though more recent versions of SQL Server do a better job of in-place upgrades, to the point where I’m fairly comfortable suggesting one to a client.