I have been asked this question many times lately.
The installation steps are very simple, just follow these steps:
Step 2: Download the TFS 2010 SP1 from here
Important: Creating a snapshot for TFS is only after shutting down the server, the server MUST be off
Step 3: Create a full server backup or Snapshot if you have a virtual machine.
Step 4: Turn on the server (If you have created a snapshot)
Note: The next step will install all is needed for the Team Explorer that in most cases is installed on the server, incase of no Team Explorer or Visual studio is installed on the server skip to Step 6
Step 5: Install Visual Studio 2010 SP1, restart the server after the installation even if it doesn’t request you to do so
Step 6: Install the TFS 2010 SP1
Note: If the installation of the SP1 both for Visual Studio 2010 or TFS 2010 rolls back for any reason get back to the backup/snapshot don’t try it again, I have seen problems in the rollback that comes after a wile.
Step 7: Install the TFS SP1 for the build machines and proxy servers too
Step 8: Install the Visual Studio 2010 SP1 for all the clients having Team Explorer 2010 or Visual Studio 2010