I have Ubuntu 11.04 Installed and have Ubuntu 11.10 Server CD. If I enter do-release-upgrade in command line Ubuntu starts downloading from Remote Servers. I wan to upgrade from CD. Please explain how to do this?

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The best way would be to follow the official upgrade guide, don't you think? https://help.ubuntu.com/community/OneiricUpgrades#Upgrading_Using_the_Alternate_CD.2BAC8-DVD

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Just insert the CD and type:

gksu "sh /media/cdrom/cdromupgrade"

Keep in mind that upgrading a system is never a wise idea, especially if it is a production server. More often than not, the upgrade might break something forcing you to reinstall.

The best way would be to make a backup, then erase the hard disk and perform a clean install.

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