Many people prefer to do a clean install of an Operating System. To do this on a new PC, you would have to buy the full version of Windows 7. However, if you already have an up-gradable version of Windows on the computer, Windows 7 can be installed using the Custom Install option. This is essentially the same as a clean install, as it wipes the previous partition containing Windows off. In the past, you would need to either insert the DVD of a previous Windows version as proof that you owned another license. Vista made you perform several tricks to fool it so you can use the upgrade media. Regardless, it has never been easier to perform a clean install of Windows, provided you already have a version installed on the same drive.
To perform a custom install, you must first backup all important data. If you do not, you will lose it during the upgrade. Put the backed-up data on an external drive or DVD and remove it from the PC. Then, either boot to the Upgrade media or open it while in Windows. You will see the image above and have an option to either Upgrade or do a Custom Install. If you opt for the Custom Install, you will need to put your applications and other data back on once the clean install is complete. Make sure you have all of the disks and their key codes for all applications you want to put back on, afterward.
Most people will probably just choose to Upgrade rather than perform a clean install using the Custom method. This is fine. There is no proof at this point to say installing over Vista or XP will cause performance issues. But for people that do not have a valid upgrade path, such as Vista Home Premium to Windows 7 Professional, the Custom Install allows you to upgrade by erasing the other version. You could, of course, dual-boot as well. But there is no real point in that.