When performing the upgrade and according to the document "Foundstone 6.8", "Foundstone Enterprise Install Guide", on page 77 step 8 it states:
On the computer running the Foundstone Database, start the Foundstone 6.8 installation program to upgrade your database. By default, your Foundstone
Database will be upgraded to Foundstone 6.8. If you want to install a new database, you must modify the Database installation type on the Installation Settings step of the installation wizard.
Does this literally mean to run the upgrade agent on the SQL Server where the database is located?
Yes you need to run the 6.8 installer on the database. The installation wizard will give you the option to select which components to upgrade.