The documentation explains this.
SAP HANA Modeling Guide > Additional Functionality for Information Views
Replacing Nodes and Data Sources
"... if your requirement is to replace the deleted view node with its underlying view node, then you can use the replace feature to replace the view node with its underlying node and retain the semantic information of the changed node...."
So, this feature really is more about deleting nodes from the data flow graph without loosing all the semantic mapping.
Not 100% sure about SAP HANA Studio SPS9 but in SPS 11 the menu option is actually labelled "Remove and Replace with ... Node|Data Source"
It's pretty much the complementary function to selecting an edge between two nodes and then adding a new node onto it. The new node will then be placed between the two nodes connected by the selected edge.
With these two options you should be able to get pretty close to a in-place replacement of a node with arbitrary other node.