You've got it right.
The benefit of replace hardware is that it preserves data already gathered in AMP. The scenario that makes the most sense is a down AP. Instead of deleting the old AP and adding the new one, I can add the new AP, and then use the replace hardware. This action appends the new APs data to the old AP while removing the old device from being monitored (hopefully because it's been decommissioned). This helps if you've got helpdesk admins working on cases overlapping with user issues where devices were replaced.
It also helps for long running reports. Because if you remove a device without deleting the entry (when replacing a device), and add a new device, your uptime report will show a down device where the new device came in. So there's a few different uses for the replace hardware option, but you've got the right idea.