Well you should make a backup before upgrading, but what happens is that it just replaces the OS and leaves everything else intact. Some of your apps may not work if they were designed for PowerPC, but everything else should be fine. When I did my upgrade I decided to do a clean install and using Time Machine to restore my crucial apps, documents, and settings, but I left everything else behind. I would recommend doing a clean install just because it will make everything run much quicker without all the clutter of your previous system.
If you decide to just do the upgrade from the Mac App Store, all your data should stay intact but it's always better to have backups just in case.