As I understand your question, and understand the mechanism, it's like this:
1. Hits to elements (as represented by the creeping red zone in the element icon in the element inspector window, for example) get replaced by you going all green away from the action.
2. However, if an element gets entirely eliminated (changes chevron colour in the unit icon in the bottom bar, disappears completely from the element inspector window) then you have to use replacement chits to get it back.
3. I believe you must be in a depot town for the replacement chits that you have made available to be allocated to the unit.
4. I also suspect that replacement chits have another function entirely - which is that completely new units (reinforcements) cannot be built (even if you've ordered them and they appear in the boxes on the production page) unless there are enough of the right kind of chit to feed into their construction.
Someone who knows better than me will no doubt be able to confirm whether any of this is correct?