I need some help on the basics of dependency substitution. Currently, I have a project that does this:

configurations.all {
  resolutionStrategy.dependencySubstitution {
    substitute(module("foo:bar")).using(module("foo:baz:1.0"))
  }
}

How is this different from

dependencies {
  modules {
    module("foo:bar") {
      replacedBy("foo:baz")
    }
  }
}

and which one is preferred?

You likely want the first. The second, a module replacement rule, only kicks in when both bar and baz appear in the graph. In that case, conflict occurs and baz will win. With a substitution, the rule always applies. Whenever the graph sees a dependency for bar it treats it as a dependency for baz

Is the specific version necessary?

I believe so. Not completely sure