The Battlechest includes the base game as well as all of the prior, non-current expansions—Blizzard has been merging prior expansions into the Battlechest since Wrath of the Lich King, although these days it happens as soon as the next expansion releases, whereas it used to happen much, much slower. So, there is no upgrading or anything like that until you reach the starting level of the current expansion (currently Warlords of Draenor).

Now, I don't know what you already know about RaF, and rather than type everything out trying to figure out what you may or may not know at this point, I'm just going to link you to Blizzard's site. If you have any questions about what you see on that page, then feel free to ask, and I'm sure there will be another person or two who may chime in.