Hey all-
You might have read some historical posts by me on my personal blog site here and team blog site here. Now I am part of Dynamics 365 PFE team focused on Customer Engagement. Here is my first post on CRM PFE Team blog site 
Clone Solution feature has been around for a little while. However, I came across several customer questions around Clone Solution action and removal of managed component(s), entities or entity assets. For customers already familiar with Solution and Customizations, I created this guided lab showcasing simple example of Managed Component removal using Clone Solution and explains “Stage for Upgrade”. Presuming familiarity with Solutions and Customizations, this is not a full scale click by click lab document. For simplicity Dev and Test instances are Source and Target orgs, respectively.
In Dev Instance:
Create a New publisher named Contoso Consulting. Set prefix to CC
Create a new solution, named Providers. Set publisher to Contoso Consulting, version to 1.0
Under Providers solution,
- Create a new entity named Provider with fields Name, Website, email address, work phone, fax and show it under Sales.
- Create Agent entity under Providers solution with fields Name, email address, phone, fax, DOB and show it under Sales
- Add Sitemap under client extension section
- Export Providers solution as managed
In Test Instance:
Import Providers 1.0 solution.
Now switch back to Dev Instance:
Create 2.0 version of Providers solution by Cloning it
In cloned Providers v2.0 solution,
- Remove DOB field from Agent entity
- Remove Provider entity
- Export Providers 2.0 solution as managed
In Test Instance:
- Import Providers 2.0 solution.
Note: The “Stage for upgrade” check box on Import Options dialog allows separation of Solution Import and merging of both versions. It is checked and grayed out when there are Patches of same Solution in target instance. System enforces “Stage for upgrade” in such a scenario.
- If there are no Patches of same solution in target system, “Stage for upgrade” is optional. When “Stage for upgrade” is selected (either by System or manual), Apply Solution upgrade action must be performed manually after the import. Apply Solution upgrade action is automatically executed as part of the Solution Import if “Stage for upgrade” is left unchecked.
- If "Stage for upgrade" was selected, then Apply Solution upgrade when import is complete. Solution Import completion dialog offers this action, or it’s available on Solutions grid. This action is applicable for the previous version and not the recently imported(staged) _Upgrade solution, refer below screenshots.
Note: Behind the scenes the “Applying Solution Upgrade” action takes care of merging both version and retains only latest version, Providers 2.0 in above example. Post Apply upgrade, one can examine Providers 2.0 Solution for components removed.
Maintain or override customization doesn’t apply to removed component so one can chose depending on potential unmanaged changes in target org.
Hope this helps!