Updating isn't always the best idea. I'll tell you why at the end, however, since you didn't ask that
In Mepis 3.4-3, Synaptic won't ask you which type you'd like, it defaults to Default (i.e., not "Smart Upgrade" nor "dist-upgrade"). You can see (and change) this in the Settings menu, Preferences option, General tab in Synaptic. I am not really familiar with KPackage, although I find it useful to install downloaded debian.deb packages.
In Synaptic, [Reload] your repositories. Click [Mark All Upgrades]. Once you've clicked [Mark all upgrades] (and made a choice of which kind, if asked -- did you check on that (above)?), you would click the [Apply] button, which is the third button from the left (after Reload and Mark All Upgrades, since this is the order in which they're done). If you don't see [Apply] there, it is also located at the bottom of the Edit menu. If you don't see it there either, something is wrong
So, apply, accept the changes, and let the download begin. It may ask you a few questions once the software is being installed; accepting the default (just hit [Enter] if asked something) is pretty common.
Marking all upgrades can be a bad move, however. Mepis was created at a specific point in time while the Debian Testing repositories (the software that Debian is based upon and uses) were in constant flux. Although the Testing branch is becoming less turbulent, it is still changing and Marking All Upgrades might either (1) break something important because a special supporting file (called a "dependency") has a bug or error, or (2) break something because the Debian people decided that Way Y is a better method than Way X, so by Debian switching to Y and your system is now somewhat incompatable with Way X, you're getting stuck asking, "why?" Or neither of these may happen, and life is good.
Properly reading the installation questions can help avoid some of these problems (i.e. not automatically selecting the default) and I am sure that I have a lot to learn about better upgrades and system administration.
I've always just found it to be a headache-in-waiting when I try to do a full upgrade of any sort, and try to stay content just installing/upgrading the programs that I need/want/use. Because the laziest way to fix a broken system is to reinstall it, and trust me i do it plenty.
(I would love for anyone to correct me if I am wrong on any of the points here, as I too would like to learn why my upgrades break my system, etc)