Upgrade checkbox is when you want to scan your host for upgrade compliance - for instance if it is 3.5 and you want to do an upgrade to 4.0

Patches checkbox is related to 3.5 and 4.0 host but only for patching like rollups, updates and individual patches. That's the main difference - Changing the host version from 3.5 to 4.0 is done by upgrade and moving from 3.5 U1 to U2 is patching.

If you want to check what patches you need - create dynamic host patch baseline. For upgrade you should upload 4.0 iso to host upgrade baseline and remediate with it
hph,
Petko