I don't think they will tell us exactly how the match will work, in my case it matched most of the stuff I ripped myself, (vbr, avg rate ~200kbps) or bought from amazon but there are some odd exceptions, like one track from Abbey Road (though it matched all the others and they were all ripped at the same time, using identical settings, ...) and lots of things like that. I'm sure you can find some articles on the match and how people think it works. I kind of doubt you could edit a file and create a fake match yourself, but, sure, you can try I suppose.
You don't have to replace the tracks in your library where you ran the itunes match. Presumably you have one master library? That's what I have, I just ran it there, but I'm sure I still have the original flac files somewhere if I really need them or want them. Didn't you rip to a lossless format?
Anyway, if you want to "upgrade" the tracks in your original library, you can, but it won't do it automatically. (as you noted). Here's another article describing the process, the one I used which is much simpler:
http://www.macworld.com/article/1636...atch_fast.html
Anyway, it worked fine for me. The cloud was up and down a few times when I was trying to download the matched 256kbps AAC versions, so that was pretty weird too.
-David