I am using version 1.4.0.4 [7122]

Whenever i click "Check for Updates", i get the following error:-
"Could not connect to zenphoto.org"

Also, i cannot find the "check for update" plug-in in the plug-in section

It is a standard backend utility and therefore not on the plugin tab. At times our site encounters heavy traffic which might lead to this. Anyway, it does not more than to check if you are running the latest version. It does not install or something.

oh, i thought it would do an update as well.

I was reading the upgrade section of the user guide, i have a question wrt "Download the latest version and upload it to your server."

As part of this step does it mean that you upload to the current installation directory on the webserver (i.e. overwrite existing files) ?

Upgrading is the same as installing which is bascially uploading the root index.php and /zp-core plus the standard themes within /themes (be sure not to overwrite your own, do backups). Of course don't overwrite your /albums folder, the /zp-data or the /uploaded folder.