I assume it recreates a speaker experience in a headphone. Is that correct?
Yes
Doesn't the raal SR1a already do that?
No, not really. The raal just sounds like speakers attached one or two inches from your ears (as that is what they basically are, and that may sound a little different than traditional headphones, but not at all like real speakers at greater distance in a room.)
Does this A16 do it better?
Yes, way, way, way better. With normal speakers in a room both ears hear all speakers and all reflections and reverberations of all speakers. The A16 emulates all that, and in accordance with your personal hrtf, for up to 24 speakers (16 in the older hardware version), and with headtracking (so the virtual speakers stay stationary). The result really sounds like speakers at a distance in a room. But you have to do a personal measurement in a room with speakers for best results.
Does it replace my dac, or my headphone amplifier or neither? Where in the chain of transport, dac, headphone amplifier does it go?
It is very flexible in this regard:
It can replace your DAC and headphone amplifier (for 2 users), but the processed signal intended for the headphones for each user is also available via optical and coaxial spdif, and via analog stereo RCA/cinch so you can use your own DAC(s) and amp(s), or only your own amps if you want.
On the input side:
-analog stereo
-analog multichannel up to 16 channels
-via optical and coaxial spdif inputs: 2 channel pcm, bitstreamed dolby digital, in the future: bitstreamed DTS
-via HDMI inputs: up to 8 channel pcm, and bitstreamed dolby digital / dolby truehd / dolby atmos up to 24 channels (16 in the older hardware version), in the future: dts / dts hd ma / dts X and Auro 3D
-up to 16 channels PCM via USB