Gives you the ability to clone posts, and replace posts. Together, you have a very powerful tool for a fork/merge editing model.
No, those edits are overridden. For a more typical fork & merge writing model, check out Post Forking
Absolutely! Post replacement happens when the post is published, so you can replace a post in the same ways you can publish any other post.
This is done as a fail-safe. At this time, replacement happens on publish. Remember that the replacing post will be deleted after it is merged into the to-be-replaced post. If your replacing post is published, then you will be deleting a published post, leaving a 404 on your site. If you want to replace a post with a published post, you must first unpublish it.
Everything about a post will be cloned except child posts (which includes attachments and revisions) and some core post meta, like _edit_lock and _edit_last (though you can alter the post meta that's skipped with a filter)
Everything about a post will be replaced except its Post ID, Slug, GUID, Post Status, and child posts (including attachments and revisions).