You may have had questions or have had others ask you:

Does a WSP deploy perform an IISRESET?
We are upgrading a solution, will it cause an outage?
What causes an outage when working with SharePoint WSP files?

Over the years, I have had many discussions / meetings with clients & colleagues about this and I would like to publish my findings and the links that I have had with me for a while. Let’s clarify this ambiguity:

Here are answers straight up in three scenarios:
Deploying a solution
Do you need to prepare for an outage / IISRESET?: Yes

Retracting a solution

Do you need to prepare for an outage / IISRESET?: Yes

Upgrading a solution

Do you need to prepare for an outage / IISRESET?: Yes

Ok, lets take a closer look:
Deploying a solution
Initially, the package manifest.xml is checked for its content & destination locations. The files specified in the manifest.xml are copied to the locations. After solution files are copied to the target servers, a configuration reset is scheduled for all front-end Web servers; the reset then deploys the files and restarts Microsoft Internet Information Services (IIS). Farm administrators can specify when this occurs (a timer job).
Reference: http://msdn.microsoft.com/en-us/library/aa544500.aspx

Retracting a solution

On each front-end Web server, the following occurs:

- Internet Information Services (IIS) is disabled.
- Files are removed from the system.
- IIS is re-enabled and Microsoft SharePoint Foundation is reloaded when a user browses to a page.

- Farm administrators can specify the time when the retraction takes place.

Reference: http://msdn.microsoft.com/en-us/library/aa543958.aspx

Upgrading a solution

There are two ways to do an upgrade of a solution. i.e. Replacement and Update. Both inolve a an IISRESET.

Replacements are essentially a retract and optionally removal of a WSP. Then the new version is added and deployed. Causing an IISRESET (twice!).
Updates are essentially a deployment with the same file name but different GUID. SharePoint detects this and retracts the old solution and deploys the new one..causing an IISRESET.

Reference: http://msdn.microsoft.com/en-us/library/aa543659.aspx

Please note that there is a -local option when deploying a solution, but according to MSDN, this is to be used for troubleshooting purposes.
Reference: http://msdn.microsoft.com/en-us/library/microsoft.sharepoint.administration.spsolution.deploylocal.aspx