UPCYCLING IS NOT A VERY WELL KNOWN TERM YET but an activity that has been done for many years. Probably your grandma upcycled worn out clothes into practical cleaning utensils. -> Upcycling involves processing used materials to new products - often by mechanical (instead of chemical) transformation. Read the definition on wikipedia here: http://en.wikipedia.org/wiki/Upcycle
Why does upcycling make sense? Upcycling is generally a less harmful way of creating new and valuable products. It's friendlier to our environment and asks us people for creativity, open-mindedness and an alternative way of looking at waste.