To switch from fedora-39-xfce to fedora-40-xfce, is the best procedure to install the new template, update the new template, shutdown all qubes using the old template (as reported by the Qubes Manager GUI), switch templates in the Template Switcher GUI, start the qubes again or just reboot, and remove the old template? Any other steps required or recommended?
Yes. If you don’t have customized templates, you just through the steps you listed.
See the support page
With customized templates you would re-clone and re-customize the new template?
With customised templates you can either proceed as you said, in which case having the templates under salt control helps a lot, or upgrade the customised templates in-place (documented per-template, like here for Fedora-based templates.).