Replacing the Design of a database will remove all design elements in a database and replace them with those from a new template. This process also resets the Database properties (specifically the Database properties you see on the Design tab in the InfoBox (Properties Box) when you select File, Database, Properties.) In contrast, Refresh Design will use this information to do essentially the same job with the design elements, but the Design properties of the database will not change.
Please Remember, If a design element has the design property "Prohibit design refresh or replace to modify" enabled then neither Replace or Refresh will remove or replace the design element.