From Probably WordPress 2.7.1 there is auto update feature, so you don't have to do it manually like long ago, and don't have to use “WordPress Automatic Upgrade” plugin. Its nice and very cool feature to keep up-to-date and stay protected. But a lot people face problem to make it work. It fails to work as expected if there is file permission issue or something like file system issue. Now as WordPress 3.1 Released with a lot update, everybody should update to latest. Those who has Update error here I will talk about a simple solution.
A lot could get this error
To perform the requested action, WordPress needs to access your web server. Please enter your FTP credentials to proceed. If you do not remember your credentials, you should contact your web host.
Even if you gave your FTP details it might not work. You could get this error message too
Could not copy file.: /wp-admin/css/theme-editor.dev.css
Could not copy file.: /public_html/wp-admin/css/theme-editor.dev.css
Could not copy file.: /…/…/wp-admin/css/theme-editor.dev.css
Could not create file.: /public_html/
To assure you all, yes WordPress core team knows about this. There will be a patch on WordPress 3.2. But for now John Ford from Automattic has released a plugin called “FTP Upgrade Fix” which will solve your problem. Just search this plugin, Install, then re-try upgrading. This time upgrade will work, but you have have to provide FTP details still.
So give big thanks to John. Here are some other cause to have your upgrade fails.
1) If your server is full, means no space left, then no upgrade or any plugin installation will work.
2) If your server php has specific condition like it cant use GET function and cant use unzip commend then no upgrade or install will work.
If you has any of those problem try to contact host or your host guys, and get that fixed first. And WordPress Support forum is always beside you.