In essence all these plans work like insurance. They calculate the expected number of replacements vs cost and profit from the excess. Most likely its not MS actually providing that but someone else and MS is just getting a sliver from the sale. It doesn't really matter one way or the other as long as you get good service. I once worked for an insurance company that provided branded services to Toyota, Honda etc. it was completely run by the Ins co and had the look and feel of the subscriber (Toyota, etc ).
Refurbished devices typically have to comply with regulations and generally would be certified restored as new. On other vendors sites that offer refurbished units for sale they identify units with scratches, dents, blemishes separately. you will also see retailers selling open box units etc. These are NOT refurbished even if they also sell certified refurbished units. They may also use these as store replacements depending on their policies.
