The upgrade scripts goes in a tarball with local.conf at the top level.

The tree is a follows:
.
|-- install_list.txt
|-- install_list.txt.md5
|-- install.sh*
|-- install.sh.md5
|-- local.conf
|-- local.conf.md5
|-- model
`-- repo/
    |-- arm926ejste/
    |   |-- busybox_1.24.1-r0.mlinux2.mlinux2.1_arm926ejste.ipk
    |   |-- busybox-hwclock_1.24.1-r0.mlinux2.mlinux2.1_arm926ejste.ipk
    |   |-- busybox-ifplugd_1.24.1-r0.mlinux2.mlinux2.1_arm926ejste.ipk
    |   |-- busybox-syslog_1.24.1-r0.mlinux2.mlinux2.1_arm926ejste.ipk
    |   |-- busybox-udhcpc_1.24.1-r0.mlinux2.mlinux2.1_arm926ejste.ipk
    |   |-- initscripts_1.0-r155.3.40.0_arm926ejste.ipk
    |   |-- initscripts-functions_1.0-r155.3.40.0_arm926ejste.ipk
    |   |-- Packages
    |   |-- Packages.gz
    |   `-- Packages.stamps
    `-- Packages



install.sh gets executed if it exists by /etc/init.d/umountfs

The files are placed in a tarball called upgrade.bin, and it
should be located in either /var/volatile/flash-upgrade or
/media/card/flash-upgrade to be compatible with umountfs.

The file /var/volatile/do_flash_upgrade must exist and
be owned by root for umountfs to execute the upgrade
procedure.

install_list.txt is a list of packages to
install after the upgrade.  If some packages
have mutual dependencies on each other, they should
be put on the same line.

The file local.conf should contain a list of
architectures with priorities, and a list of
repositories.

The md5sums are created as follows:

cat install.sh | md5sum -c install.sh.md5
md5sum install.sh >install.sh.md5
md5sum local.conf >local.conf.md5

model is from the part of the hardware
version before the first hyphen.

Example:

MTCAP-0.1       Would be MTCAP
MTCDT-0.0       Would be MTCDT
MTCDTIP-0.1     Would be MTCDTIP