How do you understand $a\times1=a$ in Peano axioms?
This should be understood as replacing $1$ with $a$? For example, when we multiply $3$ by $2$, that means: replace each $1$ in the number three with $2$?
Is it just a replacement or is it something else?
The replacement simply seems to be distributivity in disguise. Consider $$a\times b=\underbrace{(1+1+...+1)}_{\text{a times}}\times b=\underbrace{(b+b+...+b)}_{\text{a times}}$$Thus, each of the $1$ was 'replaced' by $b$ by simply distributing over $a$. The distributivity of multiplication over addition on $\Bbb N$ can be established using Peano Axioms.