Upgrading OS X 10.6.8 to Mavericks on MB Air
I think the best option would be to create a bootable USB drive and install from there. But if you need to do it via a local file, I would copy the Upgrader File to the /Applications folder of the MB Air. 

Yes, you should make a backup. Especially since you are jumping a couple versions of the OS. 

(In truth, I have not had a problem with any of the 30 or 40 upgrades I have done with Mac OS X in the last 4 or 5 years. But I always had a backup, unless I was planning on wiping the system clean. )