I found a file in my base folder width the name replace.sh and width the text string.

sed -i "s/$1/$2/g" `grep -ir $1 ./*|grep -v '.svn'|cut -d: -f1`

Wat does it mean and what does it do?

This takes two parameters $1 is the old value of word, $2 is the new value.
The code searches every file in the directory for the old string, if it finds the string in the file and the filename does not end in .svn - then it displays the whole file on the screen with the old word replaced by the new word.