Cards that use the word "instead" replace an effect with a different effect. When a card has a new effect applied to it "instead", it is not considered to have the original effect applied to it in any way. As such, "instead" implies a "would be" condition for the original effect (e.g. "if your character [would be] discarded...")
Sometimes a card selects a different target(s) and applies an effect to that instead. If this is not the case, the new effect is applied to the same card(s) targeted by the old effect. Also, the ability may have conditions that indicate only some of the cards have the new effect applied.
Example: if a card says "… blue Heroes that would be discarded are returned to territory instead" and a mixture of Heroes are discarded from battle, the blue Heroes have the withdraw effect applied, while other Heroes have the discard effect applied.
If a card is immune or otherwise protected from the new effect, the original effect is still applied. If a card is immune or otherwise protected from the original effect, the card is not affected at all.
Example: "… blue Heroes that would be discarded are returned to territory instead", with two other active effects: "N.T. Heroes are protected from withdraw abilities" and "O.T. Heroes are protected from discard abilities". Because the blue N.T. Heroes are protected from withdraw, they are discarded as normal. Because the blue O.T. Heroes are protected from discard, they are unaffected.
If a single card uses "instead" to apply two or more effects to the same group of cards, the combination of applied effects resolves the special ability for that card.
Example: if Herod's Temple (Di) would discard more than one card from draw pile, and at least one is a Lost Soul put in play "instead", the combined total of discarded cards and Lost Souls put in play count toward the total required by Herod's Temple. However, if the card discarded from hand has a different effect applied "instead" by a different card, the ability is not properly resolved.
Abilities that describe an end of battle condition (ex: If defeated, If character defeats, If rescue attempt fails, etc.) followed by instructions about what to do when that condition is met, have an implied “instead” which causes the effect decribed in the ability to replace other effects if the condition is met.