Scrap is used to upgrade units. There are two methods of earning Scrap points in the game.
Scrap points are earned through scrapping units in the Squad Bay or by winning battles. The amount of Scrap gained from scrapping units depends on what Tier and/or level the unit you are going to scrap (e.g. scrapping a T1 H4 Helo will yield 2 Scrap points while scrapping a T2 Scorpion will yield 10 Scrap points).
An arrow will appear next to a unit indicating that it can be upgraded once you gain enough Scrap points.