I don't understand how to upgrade. I don't see any option to in the Titanium Developer app, and downloading Titanium from the Appcelerator site and installing it, it still says it's 1.2.1. Any help?
The version that it on the top of your toolbar is for the Titanium Developer product.
To upgrade to 1.3 select your project, then press the edit tab. Under the SDK version you'll have a dropdown where you can select all of the available Titanium Mobile SDK versions.