When we use the word "replace", we are substituting an item for another. For instance, you are trying on an L sized shirt. It doesn't fit you, so you replaced the L sized shirt with another M sized shirt. The L sized shirt is gone and you now have only the M sized shirt.
The word "displace" describes something or someone which is made to move out of its usual rightful place.
You have a bathtub full of water. Then you step into the bathtub. Some water flows out of the bathtub. The water that was made to flow out is water that is displaced.
Country X has a civil war. Many refugees are forced to escape to another country. We say that the refugees are displaced from their homes.
Hope this helps.