Just to add clarification to eschwartz
It completely replaces the PROGRAM FILES.
A true Initial (First time) install, creates the User Preferences (folder) and
a Library. These are never REPLACED during a re-install (update).
This is also the reason that NEW feature Icon do not automatically appear on existing toolbars. That would
mess 
with your desired preference settings.
In very rare cases, The DB's internal structure was upgraded