The *best* way to think of salvage is that you're about to send a badly damaged plane home for repair, but before it leaves your stripping useful parts from it, in order to repair other aircraft.
The *simplest* way to think of salvage is that you are transferring damage counters *from* an aircraft you're going to keep *to* an aircraft you're going to get rid of and replace with a fresh one.
So if you had two of the same model car and you were about to trade one in, you might take the better stereo and newer tires off the one you're getting rid of and put them on the one you're keeping.
So yes, the aircraft must be of the same type, and yes, the aircraft you replaced will fly no more missions, it's out of the game.
And remember that only certain damage counters can be salvaged, as listed in the rules (top of page 22).
From the bottom of p. 21
If you are Replacing an Aircraft that did not Crash, you can Salvage it for parts to Repair an Aircraft of the same type. If the Salvaged Aircraft did not suffer a Damage of the types listed here, you can freely Repair one of each Damage type from the Aircraft you are replacing.
Salvagable parts: HUD, Display, Controls, Engine, Cannon, Pylon.