How to upgrade iOS software
You can ignore the prompts, but you’ll want to upgrade. iOS 5 brings a number of new features including a new notification system and the ability to sync wirelessly – in fact, the next software update you do won’t have to be done through a computer.
First, you need to upgrade your iTunes. It should prompt you to do this. If you don’t, the upgrade won’t start.
Then, you need to plug in your device. After you do so, iTunes will tell you that it’s detected some new software, and that it wants you to download it. There are a few options here. You can just ignore it, just download it, or download and update. You’ll want to download and update to make things easier.
It’ll start downloading the software, and then automatically installing. You’ll want to keep your phone plugged in the entire time. In fact, you’ll want to walk away, as the process can take quite awhile to finish – up to half an hour, depending on your download speed.
Once you’re finished, the phone will sync again, and you’ll be ready to go.