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The defensive replacement is just a player who's better defensively than the player who may be a liability in the field, but has a great bat and, therefore, must be in the lineup. Defensive replacements typically come in towards the end of the game.
Let's take the 2004 Red Sox for example. In the World Series, David Ortiz was forced to start at first base because there's no DH in NL stadiums. Towards the end of the game, if Boston was in the lead, the Sox would bring in Doug Mientkiewicz to play first base instead of Ortiz because Doug is a much better defenseive player. Boston wouldn't want to risk any errors and let the game slip away, so they would play it safe to keep from making bad plays in the field. Even if Doug has to take an at-bat, it really doesn't matter because Boston would already have the lead. Boston wouldn't want to leave Ortiz on the bench all together because they need Ortiz's bat to get the lead in the first place.
In tight or important games, a great offensive player is often substituted for a player with fantastic defensive skills, the thought being that the substitute has the potential to keep his team's lead late in the game by making plays that the starter could not. While defensive subs often occur in the sixth inning or later, a notable example late in the game was on Mark Buerhle's perfect game, when DeWayne Wise entered in the ninth inning. Wise possessed better defensive skills than the starter, and he was brought in to prevent Buerhle from losing the game with his superior defensive skills if the ball was hit to him. Sure enough, he made a ridiculous jumping catch that the starter would have been unable to make, thus preserving the perfecto. Tony La Russa, a successful and experimental manager, utilized this strategy on several occasions, including during Game 7 of the 2011 World Series, when he made several defensive substitutions in order to not let the game slip away by errors and to allow his team its best chance to get three outs in the field.