Just install on top of the previous version.
Correct.
Do not uninstall first unless you are having an issue. This is just creating additional work for yourself for no good reason. 99.999% of the time installing over-top of the existing build is the recommended process.
If you are having an odd problem (like crashing or hanging) that can't be otherwise explained, then maybe it is worth a shot to try.
But, to answer your question, a Library Backup contains the entire Library and also all user settings and options. More info:
http://wiki.jriver.com/index.php/Library_Backup
