RE: Replacements
Yes, the sub unit would all receive the 10% but the units in the parent formation would receive 5% (in your example). Basically, a lower organization's rate will override a higher one, and units that are not given a rate which are under a parent will receive that parent's rate (ie. An entire corps will receive that 5%, as well as any units you attach over to it -- so be careful -- but sub units that have explicit rates set will always receive their rate instead). Anyway, I have already did all this in the N44_Alt scenarios. Allied recovery rates are set at something like 1%, and the US units (except for airborne) and the UK tank formations all have replacements so that the British infantry units do not gain a lot of strength.
In regards to the replacement rates, yes, 1 or 2% would be the most used values, but it all depends on what you want to accomplish. If you set it higher than this for some reason then fine, you might want units to regain full strength in several days. This is not entirely unrealistic given that the unit would have to physically sit in place for two days and be in good order and, out of the front line (so MPs are not sapped from it, and so it won't get disrupted), and it has to be in good supply and within range of the HQ. The supply level also plays a factor in replacements; I think if the supply level is ~25% or so then the replacement rate for that unit will be reduced and scaled to 0% depending on the supply level that is < ~25%. So you can't just assume that units will regain replacements to the point that every unit will regain full strength in a few days just because of the replacement rate you set.
With that in mind though, if you want to create the feeling of a "horde" then I would recommend using about 4%, but certainly no higher than 5%! 10% is definitely too extreme.
edit: corrected some confusing typos
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