If you are deploying with Visual Studio, you need to just deploy version 1.0.0.2 and it will create the new folder and put the new versions there, and update the setup.exe and yourapp.application file in the top folder.
If you are deploying to a local folder and then manually copying the files out there, you only need to copy that one file and the setup.exe and yourapp.application file need to go in the folder above that and replace the ones that are there.
The application file in the top folder determines which of the subfolders is used for the next install or update, and the setup.exe has the URL embedded in it as well.
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