I just spoke with a Crown and Anchor consultant. Upgrades are done when rooms are available (obviously!) in order of your cruise points on Royal Caribbean. I'm not sure all the ways you get cruise points, but it's at least related to how many cruises you've gone on and what level of cabins you've previously purchased. Something on the order of 1 point per regular cabin, 2 for balcony, etc. They do not combine points within a cabin, they take the highest ranking point member of the cabin. If things roll in your favor, they will call you with details and let you decide case by case if you want the upgrade BUT if you don't answer and call back within 60 minutes, you lose the upgrade. Typically you need to be a diamond plus or diamond member to have much of a chance, but sometimes groups of diamond members want to stay together on a floor or whatever reason they DO refuse upgrades, so never know.
Hope this helps.