"Upscaling" literally means converting a lower resolution signal to a higher resolution. It typically assumes deinterlacing (allowing 480i signals to become 720p, 1080i, or 1080p). The term itself doesn't offer any specifics on the quality of that upscaling - after all, my HD cable box also "upscales" standard definition broadcasts, but you won't see anything on Scientific Atlanta's spec sheet that lists "really dreadful deinterlacing" as one of the 8300HD's features. (It probably should, but I suspect their marketing department would balk at that...)

You can find detailed video test procedures here and there (one of the oldest is Secrets of Home Theater's DVD benchmarks, which puts a fair bit of attention on proper performance with MPEG decoding and with deinterlacing), and those can shed some light on the quality of a component's video processor, but a lot of it comes down to reviews. The Onkyo 805 uses a Faroudja chip for its video processing. That's pretty old tech these days, and it's very possible that your TV's built-in video processor can match it. (Oh, yeah, let's not forget that every HDTV you look at will include the ability to deinterlace and scale video inputs.)

The ABT2010 video processing chip in the DVDO Edge is a platform that I've spent some time with and even had a chance to do some casual comparisons to the Reon chip (which is used in Onkyo's 905 and 906 receivers). The Reon is a very capable chip, but I find that the 2010's processing tends to win out - at least for my tastes. The PS3's video scaling and deinterlacing has come a long way since it launched, but from what I've heard about it a good Reon or ABT2010 implementation can still outperform it.