It's very very important to do this. If you update you'll lose everything.
There's various ways to do it (in terms of order) but generally speaking:
1. Backup all your site just incase.
2. Take a copy of your theme and rename it once it's on your hard disk.
3. Take a screen shot of your site and copy it into the theme folder. I think there's already one in there, so maybe open it in photoshop and paste the screengrab over it - it must be the same name (screenshot.png) and same dimensions. Then upload the folder to the themes directory.
4. Go into the top of style.css and modify the info there to something like this:
Theme Name: Name
Theme URI: http://www.blabla.com/wp-content/themes/yourtheme
Tags: bla, bla
5. Save that and pick your theme from the appearance/themes menu.
Like i say, you have to all that in a particular order but that's about the size of it. You can have a play as long as it's backed up, nothing can go wrong.