Thanks for your help and your answers.
I stopped by the SBB office today to clarify this, and here is some info, in case this will help someone else (and the SBB employee triple confirmed this for me):
1. In my case, since my "home base" ticket is Zone 110, then the zone upgrades work only from that zone (obviously, in any direction). Even though I have a ticket that I will purchase from Pfaffikon to Lachen, the zone upgrade still only applies from Zurich to any four zones.
2. Regarding whether Pfaffikon is 4 or 5 zones:
If I were to go just
to Pfaffikon from Zurich (with my Zurich abo), then yes, I would have to get a 5 Zone upgrade. However, because I will then be buying a ticket from Pfaffikon to Lachen, I only need a 4 zone upgrade because that ticket from Pfaffikon to Lachen covers ALL of zone 181.
So, if your FINAL destination is whatever zone, then your upgrade has to cover that zone. But, if you keep going from this destination and have a ticket onward, then you do not need to cover that zone in an upgrade, as it will be covered in the ticket you purchase to go from that zone onward.
Same applies in the case of Zone Upgrades. For example, when I go to Lachen, my ticket is not Zurich Lachen (because I already have a monthly Abo in Zone 110), instead it is from Thalwil to Lachen.
Just keep that in mind when purchasing upgrades and tickets in general
Just in case this helps someone in the future.