Actually POSIX is what the GNU findutils basically follow ... with
the exception of additional GNU goodies ;-)

GNU standards say that "man pages are secondary" [1], and
that the primary documentation should be available as Texinfo manual.
Some GNU packages like the coreutils therefore generate the man
pages from --help output (with some amendments).
The findutils still have a lot of information in both formats
(man + texinfo).  My personal opinion is that maintaining both
formats requires quite some resources, and yield both redundancy
and (sometimes) the risk of discrepancies.
For now, I wouldn't necessarily want to change that, but I could
imagine that we could merge the most useful stuff together in the
Texinfo format one day, and generate the man pages from --help,
like others.  Obviously, this is an awful step for the translators.

[1] https://www.gnu.org/prep/standards/html_node/Man-Pages.html

Re. the actual case: suggestions/patches are welcome, in small
pieces to improve the documentation step by step.

Have a nice day,
Berny

1)
Regarding the terms "replace" vs. "substitute": for me as non-English-native speaker,
there's no difference between 'replace' and 'substitute.

Your example can be simplified by avoiding the files AAA.txt and BBB.txt:
it simply reads:

  $ echo line | xargs -I {} echo line2

As documented both in the man page and the Texinfo manual - and even in "xargs --help",
the -I option works on the "initial arguments".  Looking at the synopsis clarifies:

Usage: xargs/xargs [OPTION]... COMMAND [INITIAL-ARGS]...
...
  -I R                         same as --replace=R
  -i, --replace[=R]            replace R in INITIAL-ARGS with names read
                                 from standard input; if R is unspecified,
                                 assume {}

In your example above, the initial args is the string "line2". So there xargs
cannot replace '{}' because there is none.

2) findutils' info pages has a separate node to explain -I,-e,--replace incl. examples:

https://www.gnu.org/software/findutils/manual/html_node/find_html/Interspersing-File-Names.html#Interspersing-File-Names

With the above, do you see things in the documentation which could
be improved?  Concrete suggestions and patches welcome. ;-)

Have a nice day,
Berny