Apps are reinstalled automatically. All this and more happens during the migration stages of the installation process. Note that the update process does not wipe your phone data but personal files (videos, music, pics and whatever else) need to be backed up just in case something goes awry.
As to how much internal memory, 3GB will be enough. I had 3.6GB free when I did the WP8.1 update. It wont take that much space for unpacking, though, but no harm in keeping a buffer eh? ;)
And whatever happens, DO NOT PANIC if the process seems stuck. It will complete eventually.
08-20-2014 02:44 PM