Just tested. It doesn't replace the activities, it replaces parts of the compiled code (classes' dex?) with new versions.
It works well most of the time. Sometimes it can cause some nasty crashes. I guess it's expected since you can't just replace some object instances and expect it to work.
The settings does have an option to also restart the current activity when it does the hot swapping. I guess it's to account for those cases when hot swapping doesn't work as expected.
It crashes? That's pretty bad. VS Edit&Continue and Eclipse JDT, which also do something similar, warn you when a change can't be applied live (or would cause a crash resuming on old state).
I've generally found with this feature in various IDEs that it's good for changing a constant in some drawing code but not really much else, and then it just turns into frustration as you get constant popups reminding you it won't apply some change live. I think the problem is that in the timeframe companies like Google and Microsoft allocate for such a feature, it's extremely difficult to produce something that works 99% of the time. If we could get there (and improve step backwards functionality, as well) we would probably just abandon the divide between programming and debugging mode in IDEs and always have an updated copy running (or mostly, paused) alongside ready to context-switch into.
It works well most of the time. Sometimes it can cause some nasty crashes. I guess it's expected since you can't just replace some object instances and expect it to work.
The settings does have an option to also restart the current activity when it does the hot swapping. I guess it's to account for those cases when hot swapping doesn't work as expected.