You can upgrade VMware Tools manually, or you can configure virtual machines to check for and install newer versions of VMware Tools.

The guest operating system checks the version of VMware Tools when you power on a virtual machine. The status bar of your virtual machine displays a message when a new version is available.

For vSphere virtual machines, 
A newer version of Tools is available for this VM
is displayed when the installed version of VMware Tools is out of date.

In Windows virtual machines, you can set VMware Tools to notify you when an upgrade is available. If this notification option is enabled, the VMware Tools icon in the Windows taskbar includes a yellow caution icon when a VMware Tools upgrade is available.

To install a VMware Tools upgrade, you can use the same procedure that you used for installing VMware Tools the first time. Upgrading VMware Tools means installing a new version.

For Windows and Linux guest operating systems, you can configure the virtual machine to automatically upgrade VMware Tools. Although the version check is performed when you power on the virtual machine, on Windows guest operating systems, the automatic upgrade occurs when you power off or restart the virtual machine. The status bar displays the message Installing VMware Tools ... when an upgrade is in progress. The procedure is mentioned below.

Note:

Upgrading VMware Tools on Windows guest operation systems automatically installs the WDDM graphics drivers. The WDDM graphics driver allows the sleep mode available in guest OS power settings to adjust the sleep options. For example, you can use the sleep mode setting Change when the computer sleeps to configure your guest OS to automatically go to sleep mode after a certain time or prevent your guest OS from automatically switching to sleep mode after being idle for some time.

Some features in a particular release of a VMware product might depend on installing or upgrading to the version of VMware Tools included in that release. Upgrading to the latest version of VMware Tools is not always necessary. Newer versions of VMware Tools are compatible with several host versions. To avoid unnecessary upgrades, evaluate whether the added features and capabilities are necessary for your environment.