To update the theme, go to the Downloads section of your ThemeForest account and download the theme (you can check the version by having a look at the change log lower on the page with the theme description, or downloading it and opening the style.css file in the theme folder).
After you downloaded it, you need to follow the same steps as when installing it, but first you must back up your current version (recommended but not necessary) and remove it (or better renaming the old folder), then install the new version.
WARNING! In case you have changed/customized the files of the theme to suit your needs (functions, code, functionality) they will be lost! In this case, please change in the new version of the theme the code and css with the custom ones, then upload it in your themes folder.
Updating your theme will not give any changes to your Custom CSS from Custom CSS box (theme's settings), or any other back-end setting. All these are kept in the database.
After you update the theme, it is recommended to clear the browser cache, so the local cached versions of js/css files are deleted and the new ones will be loaded.
THIRD METHOD (I love this one): if you do not have customizations in the code, or language translations in the theme folder- you can simply DELETE the theme, then just upload the new version, and activate it. No worries, your settings won't be lost. OR, better rename the new theme folder, ZIP it, then install it as a separate theme. That way you'll keep both theme versions on your server, as a backup.