So my sorcerer just reached 7th level.I am not sure how to pick and/or upgrade my spells.So i pick one 4th level spell.Can i then trade in a first or second level spell for a third or fourth level spell?
You can learn two 4th-level spells when you advance to character level 7.
You've got it right in your post: by dint of the "spells known" column incrementing when you leveled up, you can learn a new spell; by dint of having a 4th-level slot this new spell you learn can be 4th-level.
Additionally, when you gain a level in this class, you can choose one of the sorcerer spells you know and replace it with another spell from the sorcerer spell list, which also must be of a level for which you have spell slots. (PHB p.101, "Spells Known of 1st Level and Higher")
So you can choose any one of the spells you know--a 1st-level spell in your example--and "forget it," substituting in a new sorcerer spell of any level you've slots for--4th-level in your example.