Replacement items are a special use case where the character is actually being replaced in the scene with another object that is on the same skeleton. This allows for a modular style character selection from non modular characters. It can also be used to extend modular characters that are setup with individual prefabs, similar to how the non modular Synty characters are setup. This was designed with these specific models in mind.
Replacement objects are the items that actually get removed and replaced with the ModularReplacementItems that are created. The system finds and disables this, then runs through routines to remap the models onto the skeleton in runtime. The system is not perfect due to issues with some models, so it’s always best to test each model you want to switch through and disable those that cause issues.