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These items can be purchased from the Ruby Shop, or built in the Naval Engineer building and can be applied to your ships. The items you make in the Naval Engineer or buy from the Ruby Shop appear in your Inventory until you use them.
Once used, Upgrades cannot be removed from the ship and used for another ship (unless it is bought from the Ruby Shop. In that case, it goes back to the inventory after you destroy the ship). Also, Upgrades cannot be overwritten by other Upgrades.
There are two types of Upgrades:
1) Sails: Increase the speed of your ships, allowing them to finish their tasks more quickly. Level 1 Sails require Coin and Hemp, Level 2 requires Coin, Hemp and Animal Skins. Level 3 requires Coin, Hemp, Animal Skins and Indigo.
2) Cargo holds: Increases the capacity of trade and transport ships. Cannot be used on ships that cannot carry cargo.