Hi Ifthekar,
1) To migrate system from one server to other server or same server using system copy you need to use same SAP version in terms of SAP Release. i.e if your Basis release is currently 700 then you can use SWPM for Netweaver 7.0 SR3 and system copy can be carried out. You can not use Netweaver 7.1 or higher version for system copy in that case.
2) In place upgrade means, once your system copy is completed and your system is up on new server as ECC 6.0 you can upgrade that system on the same server to EHP7.
Hope that clarifies your query.
Thanks,
Anand Patel