I want to create a Runtime solution application and give it to a friend of mine. He will be entering data in it.

If I update the application and want to give him the new version of it, do I just update the executable? I think not... I think the data that he enters somehow is linked with the executable he already has...

And on the other hand, if I want to take his data and use it in my [newer] application, [providing that the fields are identical of course] will it work?

Is there any special process to upgrade the application/port the data?

You can open the data files of the runtime in your regular copy of FM, export the data and import it into your real FM files.

As to providing an upgrade: if you bind the files on your machine with the same key as the original runtime you can just send him the data files to replace the old ones. No need to send him all the runtime files.