Originally Posted by Microwave

Your understanding is correct for sticker-eligible flights. It is not correct for international flights where stickers cannot be used. On such flights, upgrades are sorted by elite status, originating/connecting status, and check-in time. For example, an originating Gold flying ORD-LHR who checks in 24 hours before his flight will be in front of other Golds on the same flight who check in closer to departure time.