Product replacement pending

It means that the replacement is stil in process. You'll need to wait a bit longer. You could get a refurbished or new. It is at Apple's discretion. You won't be able to tell the difference.

That's they way the warranty is handled. It's fairly standard with most consumer electronics. Once they verify the problem and warranty status, they send you out a replacement. This means you get a working device back much faster than if you had to wait for them to repair the device.