Z-Wave replace has an inconsistent history, never really been 100% successful for everyone who tries to use it. The last time I tried to use it, it wouldn't work for me. The time before it worked - this is with the exact same device type, same hub, etc. 
If it works you end up w/your new device directly replacing the old device in all automations (keeps the original DNI of the old device). Pretty neat when it works. Here's a link to one of @jtp10181's posts on using Replace.
The other option using the "Replace an Existing Device" option during pairing of a new device. After the initial pairing is complete you are offered the option to "Replace an Existing Device" (big red button). (This is only offered during pairing as long as neither device is part of a parent/child group.) If you choose that option during pairing the "Swap Apps Device" process runs and replaces the old device w/the new device you're pairing in all automations/apps. The new device has it's own DNI, and your original device is still on the hub.
