Working out how to upgrade burgage plots in Manor Lords is one of the most confusing steps in establishing your first medieval township. If you hadn't worked it out already, burgage plots are important; they not only provide shelter for your peasantry, but they give access to a variety of item-producing workshops—once you upgrade them, that is.
You'll need to construct certain buildings and provide a variety of goods on the marketplace before you can set the upgrade process in motion, and that means building up your infrastructure.