An Up-Grade is an item that evolves the Pokemon Porygon when Porygon is traded while holding it. Porygon evolves into Porygon 2.
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The only known Pokemon to evolve using the up-grade is porygon. It will evolve it into porygon2.
In Pokemon Platinum, Porygon-2 can evolve into Porygon-Z using the Up-Grade. I do not believe it serves any other purposes.
Trade it whilst its holding an Up-Grade
In eterna city at the top of galactic tower in a pokeball
you can find it in Eterna city on the top level of Team Galactic Building