Setting up the Sample:

1. Create a Directory that you plan on running the sample from. I will call this directory the sample root

2. Under the sample root directory create two subdirectories called "1.0" and "1.1"

3. Create a text file in the 1.0 directory called Sample.txt and put some text in it telling you that it is the 1.0 version of the file.

4. Create a text file in the 1.1 directory called Sample.txt and put some text in it telling you that it is the 1.1 version of the file.

You should now have 2 sub-directories under your sample root called 1.0 and 1.1 each containing a Sample.txt file whose contents state which version it is.

5. Create your product authoring in the sample root folder called Product.wxs with the following contents:

<?xml version="1.0" encoding="UTF-8"?>
<Wix xmlns="http://schemas.microsoft.com/wix/2006/wi">
    <Product Id="48C49ACE-90CF-4161-9C6E-9162115A54DD" Name="WiX Patch Example Product" Language="1033" Version="1.0.0" Manufacturer="Dynamo Corporation" UpgradeCode="48C49ACE-90CF-4161-9C6E-9162115A54DD">
        <Package Description="Installs a file that will be patched." Comments="This Product does not install any executables" InstallerVersion="200" Compressed="yes" />
        <Media Id="1" Cabinet="product.cab" EmbedCab="yes" />
        <FeatureRef Id="SampleProductFeature"/>
    </Product>
    <Fragment>
        <Feature Id="SampleProductFeature" Title="Sample Product Feature" Level="1">
            <ComponentRef Id="SampleComponent" />
        </Feature>
    </Fragment>
    <Fragment>
        <DirectoryRef Id="SampleProductFolder">
            <Component Id="SampleComponent" Guid="{C28843DA-EF08-41CC-BA75-D2B99D8A1983}" DiskId="1">
                <File Id="SampleFile" Name="Sample.txt" Source=".\$(var.Version)\Sample.txt" />
            </Component>
        </DirectoryRef>
    </Fragment>
    <Fragment>
        <Directory Id="TARGETDIR" Name="SourceDir">
            <Directory Id="ProgramFilesFolder" Name="PFiles">
                <Directory Id="SampleProductFolder" Name="Patch Sample Directory">
                </Directory>
            </Directory>
        </Directory>
    </Fragment>
</Wix>

6. Create your patch authoring in the sample root called Patch.wxs with the following contents:
<?xml version="1.0" encoding="UTF-8"?>
<Wix xmlns="http://schemas.microsoft.com/wix/2006/wi">
    <Patch
        AllowRemoval="yes"
        Manufacturer="Dynamo Corp"
        MoreInfoURL="http://www.dynamocorp.com/"
        DisplayName="Sample Patch"
        Description="Small Update Patch"
        Classification="Update"
        >
       
        <Media Id="5000" Cabinet="RTM.cab">
            <PatchBaseline Id="RTM"/>
        </Media>
        <PatchFamilyRef Id="SamplePatchFamily"/>
    </Patch>
    <Fragment>   
        <PatchFamily Id='SamplePatchFamily' Version='1.0.0' Supersede='yes'>
            <ComponentRef Id="SampleComponent"/>
        </PatchFamily>
    </Fragment>
</Wix>

You should now have a Product.wxs and Patch.wxs file in the sample root.

Instructions for building a Patch using the sample:
Open a command prompt where you normally run the WiX tools from.
Required WiX executables:
Candle.exe
Light.exe
Torch.exe
Pyro.exe
Your WiX toolset version should be at least 3.0.3001.0

1. Build Target Layout:
> candle.exe -dVersion=1.0 product.wxs
> light.exe -sval Product.wixobj -out 1.0\Product.msi

2. Build the Upgrade Layout:
> candle.exe -dVersion=1.1 product.wxs
> light.exe -sval Product.wixobj -out 1.1\Product.msi

3. Create the transform between your products:
> torch.exe -p -xi 1.0\Product.wixpdb 1.1\Product.wixpdb -out Patch\Diff.Wixmst

4. Build the Patch:
> candle.exe Patch.wxs
> light.exe Patch.wixobj -out Patch\Patch.WixMsp
> pyro.exe Patch\Patch.WixMsp -out Patch\Patch.msp -t RTM Patch\Diff.wixmst

I am currently working on reducing the number of command line switches required for building a simple patch. Sometime soon I hope to have the commands somewhat simplified by making the defaults match up with the patch building system.

Verifying what you have done here works: 
1. Install the 1.0 Product by running 1.0\Product.msi
2. Go to "Program Files\Patch Sample Directory" and open up Sample.txt. You should see that it is the 1.0 version.
3. Close Sample.txt.
3. Install the Patch from the sample root Patch\Patch.msp.
4. Repeat step 2 and notice that Sample.txt now contains the new 1.1 content.
5. Go to Add/Remove Programs and make sure "Show Updates" is checked.
6. Uninstall the Patch and repeat step 2 to see that the file was rolled back to its original version.
7. Uninstall the Product itself to clean off your system.

This was originally posted here and may have additional comments.