Yes, units appearances upgrade with their upgrades. At this point, the Devs have been very mysterious about naval warfare, so I can't tell you much about that.
Actually, in a recent fantasy Friday, we also learned that you can train units so that they gain experience [whichc you can use to give them upgrades, etc.]
http://www.reverieworld.com/forums/s...ead.php?t=1416
Anyways, nice to see you on the forums!