If I have the game on the itch.io launcher and it updates automatically am I in trouble? or does itch.io save the new update in a different place without overwriting the previous one?
The itch launcher takes care of this for you. If you ever look at the file structure, you'll see it makes a new subfolder for each update (and Arc has it set up so that it empties out the old subfolders so you don't have multiple instances to choose from.)