Is there a way for people to download my game for free and login as free to the server then when they buy the upgraded version with paypal their login is upgraded so they still use the same application. This will prevent torrents since it is multiplayer only game.
Yes. You will probably want to create a shell of your app, that has the ability for them to create the account and set up payment, etc.
Then you could use the streaming resources ability of Unity to download just the resources they are allowed to use with their account type.
If you set up a database on a web server you can manage your accounts and all of that in there, and Unity apps can easily be set up to integrate with online databases.
I really needed to find out the terminology for this are there any video related to this at all?
No. But you can sign up for a sandbox paypal account so you can test your scripts. Its 100% free to get setup and they have examples on how to interface with their API.
Awesome thanks a lot everyone!