"Upon" has two uses: (1) Indicate position: He put the flowers upon the table. (2) Indicate that one action is linked to another closely in time (such as "during" or "immediately after"). Upon entry to the airplane, customers must show their passport. Upon hearing the news, she fainted. To paraphrase your example: When Rip tells his story, the neighbors stare at him and some don't believe it (they wink at each other). Another man returns to the field, and shakes his head--upon which all the neighbors (the assemblage) also shake their head. In this sentence, "upon which" means "after which".