The replace function is used to replace an asset that is currently in your scene, or the whole scene itself. When used for individual assets, the replace function will replace the selected asset and retain its qualities (if applicable). For example, when a character is replaced they retain the same positioning, sizing, and any actions/effects added to the character.
When the replace function is selected, the asset's corresponding library will open in the Content Panel and this is where you will choose a new asset to replace the existing one. The replace function only works in the scene you are actively working in - it does notreplace assets throughout an entire video or all scenes.
Steps
1) Select an asset in your scene (eg, Characters, Props, Text).
You can also select the scene itself by left-clicking on it in the timeline.
2) Click Replace in the toolbar.
This will activate Replace Mode, which will be indicated above the stage.
3) Select a new asset from the corresponding library.
4) The new asset is then added to the scene in place of the old one.