Installing this "upgrade" will not update your system to Loki. It will set up elementary OS 0.3.x with the Ubuntu 16.04 base, which will probably not work properly. When Loki is released, you can upgrade by downloading the ISO from https://elementary.io/ and doing a fresh install. 

From [this answer about a similar 15.04 upgrade dialog](http://elementaryos.stackexchange.com/a/3107/792): 

>No, do not upgrade to the 15.04 base. Freya is built upon 14.04 LTS and only that. elementary OS' repositories do not even contain packages for 15.04 (or 15.10, for that matter). You will end up with a broken installation.

This dialog definitely is confusing, and hopefully future versions of elementary OS will get rid of it.