If you make a copy of the install folder somewhere else before Steam updates, you will able to continue playing that version (though starting it directly rather than through Steam will result in Steamworks features not being available: that means no achievement and playtime tracking, the Online lobby list or Steam friends invite function for co-op).
If part of the Source Difficulty mod is in the My Documents folder (either in a mods folder in '..\Documents\Larian Studios\Divinity Original Sin' or the profile folder), you would need to back that up before updating to the newer version, as well.
The meta.lsb file contains information about the save itself, for use when displaying the preview in the load window, and loading the save (contains save timestamp, version info, game time, current game map, difficulty, an md5 checksum value, etc).
Since the new save will be in Cyseal, it would help to make sure the current save that you extract the individual files from is also on that map. If the characters were on another map they could end up somewhere unexpected, and/or outside the normal play area (though the teleporter pyramids and/or Rift Travel could allow you to recover).
It doesn't matter what characters you use for the new game. You essentially just need something telling D:OS to use the new version of the mod with that save.
The uncompressed contents of a save game are the meta.lsb file a globals.lsb file (containing all your characters' data, etc), a levelcache folder containing the state of each map area (opponents, loot, doors/hatches/switches, etc) and a couple other files.
Making a new save to swap the meta.lsb file is kind of like changing an address on a parcel; the contents don't change, just the instruction for how to handle it.
