you sync with iCloud
From the device's perspective, iTunes match is really "sync with iCloud"
The point of replacing the library on the device is the same as when you sync with a different copy of iTunes: to prevent duplicates and confusion about what came from where.
When you turn iTunes match on, it disables syncing music with iTunes. It may or may not remove the music on your device, depending on where it came from: it will remove any synced tracks (including purchased ones) but not tracks that have been directly downloaded from the iTunes store or iTunes match (which are the same thing really).
Turning iTunes match back off will leave everything downloaded on the device. Turning it on again won't remove anything (because it all came from the cloud). If you sync after turning it off, everything on the device will be replaced.
iTunes match doesn't stream, it syncs (and pseudo-streams in that it plays while downloading). So if you are in the tube or on a plane, you still have everything that is already on the device, just like syncing with a computer.
Best case: you can get any of your music, anywhere. If you fill up your device you can always delete some music (swipe left and hit delete).
Worst case: Same as traditional syncing, if you have no signal and no computer, you are stuck with what's on the device.