A lot of misinformation exists about upgrades when flying, and often people assume that you can ask or request one for free.
Essentially the airlines want to make a profit, and they don't do this by giving away something for free. If there are spare seats in Business class, of what benefit to them is it upgrade someone who has paid 300 pounds for his ticket to a 3000 pound business class seat when its not necessary. That person consumes more food, and will only annoy the passengers who have paid full fare for business class.
Upgrades occur when the airline deems it necessary, because of overbooking. Normally at the main hubs the upgrades are automatically decided by a computer, and at the outstations may be decided by the station manager. Most good airlines will upgrade their highest tier frequent flyer passengers when they need to upgrade, and then will ugprade full fare economy passengers (not the cheap expedia restricted economy tickets).
On rare occasions when things happen quickly, they'll just simply upgrade anyone necessary, sometimes the last person to check in (not a risk you want to take though).
Dressing up doesn't tend to have much of an effect for getting an upgrade, contrary to popular belief, as many of the passengers in business and first are dressed for comfort, not to impress. That being said, if they are in situation that they have to upgrade someone at the gate, they'll probably go for someone who looks reasonable, docile and isn't going to give any hassle during the flight.
Some airlines when they upgrade people due to overbooking, only give people the seat, but they still get the same meal and drinks as they'd been entitled to in economy.
Cabin crew and staff for the airline almost have no power for upgrades, and upgrading onboard with airlines like British Airways can result in disciplinary action as it's taken quite seriously (almost as an act of theft in fact). So occasionally you'll hear someone say that a friend of a friend of a friend works for an airline and will get them an upgrade, it's highly unlikely unless that person is on the board of directors.
I've flown about 400 sectors in the last 10 years, have status with several airlines, and have only been upgraded once! But then again I normally fly business, so I don't complain.