You can just copy the new version into the plugin directory. Due to the version number after the plugin name Eclipse should always use the newest version. It is up to you if you delete the old version.
You must ensure that the manager application is running inside your Tomcat installation. The manager is available in all 4.0 and greater versions of Tomcat.
It is also necessary to hava a user in the manager group of your Tomcat user configuration. You must provide this users name and password in the server dialog of this plugin to gain access to the Tomcat manager application.
For more informations about the manager, please check the Tomcat documentation: