Compared to the Lookout, it comes with +40 hit points and a significant increase in building cost, while all other stats remain the same: it is still a fragile structure as it has no armor and cannot attack ground units. It does have the ability to attack enemy air units by shooting arrows at them; however, it's the same fairly weak, low-ranged attack it's predecessor has.
Note that the building's line of sight does not increase with the upgrade - instead, it increases with each level of Science technology researched by +3 tiles.
Observation Posts are automatically upgraded to Air Defense Guns in the Industrial Age. This greatly improves their ability to combat upcoming aircraft while retaining their surveillance functionality.