There is no upgrade feature to this game. The exploit mentioned above is not a supported feature, and unfortunately is not practical for upgrading a large number of ships.
However, it does seem like the devs tried a round about way to do upgrades, and that was to add bonuses to weapon and defense techs. You might have noticed that many weapon techs have weapon +10% and/or weapon +1. The +10% stuff works well for big ships (small ships might not have enough firepower to notice a 10% increase) while the +1 works well for smaller ships (a lot of small ships getting a +1 bonus to attack does add up).
As for decommissioning ships, only large and huge ships have maintenance costs, so I wouldn't decommission anything smaller. If I found them not useful anymore, I would send them to defend a planet or starbase. Planets and starbases can have 60 logistic points of ships, which is considerably more than what you get for fleets early to mid game.
