When you on desire a larger coop you must have the previous size in which you upgrade.
all animals remain but you gain the ability to have 4 more animals as well for a total of 4 for regular, 8 for big, and 12 for deluxe.
When robin is actually upgrading the building The building remains the same except robin stays inside and hits it with a hammer, the building and animals inside act exactly the same and you are able to interact with them and the building the same.