the install order for those 3 should be:
Installing CMS to a local server is pretty similar to installing it to a remote server.
see the Tutorials section for details on installing a Local Texting server, defining a DW Site for Dynamic development, and creating the Database connection.
once the local testing server is installed it is pretty strait forward to create a test power CMS Site.
You could even create a PCMS Site using the previous version and a second CMS Site using the new version for a comparison sake and for practice performing the upgrade.