Overwrite Entire Directories in Upgrade?

When upgrading from say 7.0.2 to 7.0.3 are you supposed to just slap the upgrade patch onto your server and overwrite all the directories?

Or, are you supposed to go in and manually place every single file within the patch, thus never removing any files and overwriting the selected files... ?

If you're supposed to replace directories then all your modules will be erased, so that can't be the answer. However, if you have to manually overwrite each file, you could be doing that until the Apocalypse eh?

You can just upload the contents of the patch to your site; you need not worry about losing anything from overwriting files (except for some modifications you may have done, of course). Replacing directories does not actually remove all the files, only those included in the patch.

If you're unsure, just make a backup.

For example, the patch contains the directory "modules" which only contains "boonex".

If I upload that directory and overwrite my current modules directory, won't all my custom modules be replaced by the new directory with only the "boonex" folder?

Same goes for every other directory... right? What am I missing here?

Or does overwriting a directory retain all files in that directory that were there before, as it just overwrites and replaces/adds any new versions?

Exactly. It only replaces whats included in the folder you are uploading. All other files remain untouched.

I pack all of my modules that same way. Everything based off the root of the site. It just makes things easier.