Safest way to transition between iPhones

Hi,
I have an iPhone 4 and will soon be upgrading to a 5s.
My question here pertains to the fact that I want to wipe the old phone clean, i.e., get all my info off it (purchased apps, data, etc) unlock it (I am out of contract and now changing carriers). then offer it for sale (since it is in in pristine condition and will help me pay for new one).
I wonder how to do best wipe the phone clean to prepare it to sell without risking losing any data too soon that is needed for my new phone.
I also wonder about best, safest way to get data (including important data in certain apps) onto my new phone?
A few related questions:
Can iTunes distinguish between two iPhones?
If I plug in iPhone 4 and hit restore, what happens?
After I have figured out (with help of this forum) how to get my info off my present phone, can I—and is it a good idea—to install IOS7 (might that make phone more appealing?)
THANKS!
A.
PS. I was not going to raise question of unlocking on this forum but if anyone wants to offer advise or guidance about that, it's most welcome!

Thank you, Petvas.
I am attempting the update to ISO 7 (0.3) as I type. previously, I got a message that there was not enough room. (one reason for my other question on the forum about how to delete voice memos).
You wrote:
As soon as you get your new iPhone, you can reset the previous one. This can be done in the settings of your iPhone.
Now, put the SIM card in the new phone, connect it per USB with iTunes and when asked if you want to set up your phone as new, or restore from backup, select to restore from backup. iTunes will prompt you to select from a list of backups. Select the latest and click on next.
I will be getting a phone sent from APPLE set up to work with Verizon (no sim card for me to install, far as I know)? I imagine that I will just connect new phone to iTunes and restore from backup?
My other question is: after I have done the above and set-up new phone from backup, how do I remove all my data from the iPhone4 so that all that is left is latest OS and native apps and nothing more?
Also, I am still curious about the difference between a computer back up and an icloud backup?
Thanks!

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