Which Pocket PC do you have, once of the upgradeable ones, I assume.
The 1940 owner already has Pocket PC 2003, so they don't have to worry about this.
When you get the upgrade CD, it will include a utility that flashes (erases and rewrites) the ROM on your model of Pocket PC. It will first open a connection to the Pocket PC while in the cradle, then tell you the upgrade will take some time and not to interrupt the process or do anything while the upgrade is in progress.
Once it's done, it will have re-flashed the PPC with the new OS and thereafter if you hard reset your Pocket PC it will still have the new PPC 2003 OS. Only the flash utility can erase and write to the ROM area where the OS is stored. The hard reset doesn't touch it.
but what happenes when you want to update to pocketpc2003?