The Universal Replacement procedure is basically a batch that goes through all of the history for one thing and replaces it with references to another thing. The merge takes two products and ends up with all history in one product. The replacement takes one product's history and replaces all of the references to that product with something else.
Personally, it's always made me a little nervous to replace one product with another on historical transactions. I mean, if you sold 20 widgets of ABC last year and then tomorrow they say it was 20 widgets of ZYX, what's an auditor going to say?