File Locations can be set under Tools > Options > System Options > File Locations. Also check out Default Templates. It is always good to have the company standards that you set under File Locations and Default Templates to be located on a central server that all of your users can access.
You can surpress the errors in the drawing by toggling View > Annotation Link Errors The errors will still be there you will just not see them if the property is empty or not set in the file.
If this is something you struggle with for every release of SolidWorks you may want to get your SolidWorks reseller in for a visit to help you set up procedures for performing an upgrade. Also, Matt Lombard's book on SolidWorks Adminstration would be good for you to have. It discusses most all the key things a CAD admin will need to know.
Ok, maybe this image will help clear up what I am trying to do.
Originally the "Property Name" column has a drop down list. Everytime I upgrade SW's this list goes blank.
I would like to know exactly what the file name or file reference point is to get this functionality back and to better understand how SW's references files and where to change this in the "SYSTEM OPTIONS" section.
Second what does $PRP mean versus $PRPSHEET? Why do some update directly and why do others have to be manually edited.
This information is contained in a file called properties.txt. It can be pathed to under Tools > Options > System Options > File Locations > Custom Properties File
You can edit this file with your company's custom property standards.
If you edit this file you should save it on the network so it does not get over-written everytime you upgrade SolidWorks. Then path to this new location under File Locations.
You should save any customization to a network location for all of your users to path to the same location and it does not get over-written when you do upgrades.
I highly recommend you get Matt Lombard's SolidWorks Administration book. It discusses all the things you need to know to set up this type of functionality for your group.