[Outdated; Inaccurate] Overview -- Prevention and Replacement

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Originally by John Carter:

With the onset of Sixth Edition, prevention and regeneration effects started using a "shield" concept. Rather than pay for a prevention or regeneration while the affected event occurs (like under Fifth Edition), a "shield" is generated by a prevention or regeneration effect that lasts for the remainder of the turn. When the particular event attempts to occur (such as damage), the appropriate shield "pops", and a modified event occurs.

Replacement and prevention effects replace one event with another one (or with a non-event). Replacement effects typically use the word “instead”, and prevention is signified with the word “prevent” (older cards may say “reduce to 0”). Replacement and prevention effects are proactive-- they cannot retroactively modify an event. Replaced events are carried out as completely as possible with impossible actions ignored. If multiple effects try to prevent or replace a given event, the controller of the affected permanent or the affected player chose what order to apply the effects.

Regeneration is a specialized replacement effect. Regeneration replaces a permanent’s destruction with:
1. Remove all damage on the permanent
2. Tap the permanent
3. Remove the creature from combat (if applicable)

Note: Regeneration does not remove any enchantments, counters, or effects on a creature-- just damage.