The "Replace" option can be understood as group of images or text elements that will replace each other as soon as another element of the same type with the same replace value is added. This feature can be used to limit the number of image or text elements that the customer can add.
To use it you need to define a unique replace name for the element you want replaced in the product builder and setup the replace name in the individual product settings or in the main settings (Default Element Options), if you want the setting to apply per default.
There is also a setting that allows to switch between the replace taking effect only in the current view or across all views in the currently open product designer, which can be useful to change one identical design or text across all views.
This can be very useful, for instance if you are having different design categories and you only want to allow one design from every category to be added. Or if you would like to allow only one uploaded image in a view.