Re-playing an episode? Does it overwrite?

It just means you lose your immediate checkpoint. If you stop and play Ch. 3 again, you can then later go back to the level you left off at. BUT... you have to start that level from the beginning. You can't start where you left off at (the middle of the level). That's what they are talking about. If you start a new game on a higher difficulty, you wont be able to start on the levels you beat on a lower difficulty. Not sure how it works when you swith to a lower difficulty, though this game is super easy so you shouldn't have to do that anyway.  If you do start a new game however, all of your coffee mugs, manuscripts, and progression towards achievements carry on to that game.

If you completed it on nightmare first, then re-play on lower difficulty, all collectibles carry over and all episodes are open on mission select. If you did it on hard then they are only open up to hard.