First never sharpen the outside edges of the bit that cut--the spur and side lip. There are three edges you may have to sharpen--the spur, cutter and side lip. Your bit may not have a spur. The spur is a thin piece of metal that sticks up parallel with the screw point above the cutter.
To sharpen it hold the bit by the shank or twist against a work bench. Using a flat file, sharpen on the front (as you view the cutting edge) and top inside edge of the spur. Never sharpen the outside. To sharpen the cutter and side lip, hold the bit upside down with the screw point sticking into a piece of wood. This gives you a clear view and access to the underside of the cutter and inside of the side lip. Using a small triangular or square file, sharpen the underside of the cutter and inside the side lip.