Double-click the xip file and it will extract the Xcode application. Move Xcode to the Applications folder and you are good to go.
The App Store should present the Xcode update once you update to Sierra (macOS 10.12). If it doesn’t you can download Xcode directly from the App Store. The preferences are stored in /Users/<username>/Library/Preferences and are not impacted by updating the version of Xcode or OS.