WordPress update system removes your plugin's previous version folder and uploads the newer version one, so you'll lose any modification you made to any file in WP Carousel folder (and any new theme you upload).
I suggest you using an FTP client and upload the files "manually". I use FileZilla. If you upload a folder in FileZilla, it will replace any file in the folder with the files stored in the folder you are uploading, but files that are in your server and not in the folder you're uploading will remain in the server.
In short: WordPress replaces the folder. A FTP client should merge the folder. If you don't have any modifications in your WP Carousel installation, use WordPress update system but if you have made modifications to WP Carousel, you should update using a FTP client (making sure you're about mergin folders and no replacing them - I suppose there are FTP clients that may have the "replace folder" feature).