This is correct, and it’s a limitation in the plugin, due to the very stupid way that WordPress handles resized images.
The problem is that WP uses the sizes of the resized images in the filename, so if you upload a picture called “image.jpg” with the original size of 1400×1400 for instance, the medium size file will be called “image-300×300.jpg” and the thumbnail size file will be called “image-150×150.jpg”.
Now, let’s say that you upload a picture with other dimensions to replace it, say 1900×1200. WordPress will now create new resized files for you, and use the same naming convention, but most likely all of your proportions will be different, so the medium size image will not be called “image-300×300.jpg” anymore, but perhaps “image-300×241.jpg” instead.
There is no good way for me to guess which new image you want to put in place of the old one, since the sizes are different. Therefore, I simply ignore your resized images upon replacing. You’ll have to edit your posts and embed the image again to have it replaced in the post.
I am hoping that WordPress will at some point in the future move to a smarter, more modern way of working with images, so that the resizes can be done on-the-fly instead, and then we wouldn’t need to bother with replacing them.
And maybe WordPress will at some point have its own replace media-functionality built-in, rendering this plugin obsolete. ??
