I would like to know how Android app versioning is done when creating apps with Eclipse.
Now I’ve completed my first working application and would like to develop it further. But I dont want to mess with code of a working application until improved application will be in working condition. Now I can open up new project and copy/paste all code+resources, but it will have different package name (because of duplicating variables) and as I know same Market app should be within same package.
How is this done and what tools are needed?
Use version control for this. For your needs I think Git or Subversion would be enough. So take your working app code, check it in the VCS you chose (Git, Subversion etc), tag it for a release and go from there.
There are some other aspects here. You need to learn about version control and how to use it. And you need to learn about Eclipse workspaces. To address your issue here, you can copy the eclipse project into new folder, create a eclipse workspace there, and import/add this new copy of project in it. This way, you will have one workspace for the working app, and another for your improved app.
Hope this helps you understand. If you are new to programming it may take a bit to wrap your head around it. Good luck.