I have a Polisy with a Zooz 700 version 5.9.1 that is working fine. I have not upgraded to ver 6.0.0 as I don't know how to migrate the Zooz 700. Step one is backup your Z-wave. I have read a lot about it here, but few have the Zooz 700. I can't back up the Zooz 700 as the option is not available. This could all be behind me now. I also have an Eisy with a Zmatter dongle. My ultimate goal is to move to the Eisy with Zmatter. So I am thinking that if I can factory reset my used Zmatter dongle using the Eisy then I can do a Zmatter upgrade on the Polisy with the Zmatter I just reset. After that, the upgrade should be pretty straight forward. This is my step 1.

To answer your first question, upgrading the Polisy to 6.0.4 isn't a migration if you're just keeping the Zooz stick on it. It's just a straight IoX version upgrade. As you'll see in my own thread I started yesterday about migrating from Zooz to ZMatter, there is no zwave backup option when you have the Zooz dongle. That option only appears with the ZMatter dongle. The migration involves clicking on the button you highlighted in your post above, which will have you create a migration backup. This is similar to how you migrate from a ISY994i to a eisy.

Your ultimate migration to ZMatter could either be done on the eisy or the Polisy. I'd probably do it on the eisy. The process is explained here:

https://wiki.universal-devices.com/index.php?title=Eisy:User_Guide#Migration

It's confusing to read because it covers several different migrations (from ISY994i, Polisy, eisy -> ZMatter).

I haven't had much luck with my migration.