There are numerous sources of upgrade information, best practices, how-to's etc floating around. The main one you should read and consider is from the
Dynamics CRM 2011 implementation guide.
This article is not an in-depth exploration on how to conduct an upgrade (see the implementation guide for that), but more of the some of the decisions, issues, and thoughts you can consider for own upgrade. It is based on personal upgrade experience
as told by Jim Steger.
First and foremost, you have to PLAN your upgrade.
Skills & Knowledge
Before starting the upgrade you need to understand the following:
Microsoft Dynamics CRM requires 64 bit hardware for the servers. If you need to upgrade your hardware, also consider moving to SQL Server 2008 R2.
Even if upgrading to SQL Server 2008 R2 is not an option, consider migrating just reporting services to 2008 R2 version - the enhancements and new features are well worth it.
Here is a sample upgrade high level steps: