YOUR_TEMPLATE simply means the template that you are using on your site. Rename the folder to match your template folder's name before uploading it to your site.
rename the admin folder to whatever you call your admin. these instructions were written for Zen Cart version 1.3.8, and the people who've updated the mod since them don't appear to have updated then for the changes that took place in 1.3.9.
Also, as you've told people where your site is and your admin name, I recommend changing it again.
Yes, you overwrite your site's version of the six files listed with those in the mod release. But if you've made any other changes to them, or installed any other mods that change them, those changes would be lost, so you would need to merge the changes together. Sounds scary if you're not a programmer, but is easier than it sounds.
Your post suggests you're thinking of uploading the files individually - not the best plan. They are organised to allow you to upload them together and arrive (after you've tweaked the admin and YOUR_TEMPLATE folder names), in the correct locations, just check that your FTP programme has overwrite enabled (it's normally the default).
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