From what I read a while back, the X1 is what they call a tier system. Nothing new at all and similar ideas have been used for file storage for years.
I don't know what algorithm is used to determine tier 1 or 2, but tier 1 would be stored on your local hard drive, what you would access most quickly so newer recordings or recently accessed recordings. Tier2 would be stored in the cloud, older or "not accessed for a while" programs. That is why when you go to watch some programs they seem to take a minute or 2 to start up, it's copying the file down to the hard drive for viewing, and if necessary copying something else up to the cloud to make room.
For X1 you are supposed to have a terrabyte of space. If you look at your physical specs, you have 500 gig hard drive, the rest is in the cloud.
Being in the cloud doesn't currently mean you keep your recordings. That is a determined by how the software works and in X1 it must be tied to the box, you will loose all recording regardless of where they are.
This may also be why, during high traffic times like Mondays and Tuesdays in the fall, shows you are recording don't appear on your system, but later after a reboot suddenly they show up, or during the night some time (they automatically reboot every night around 4 AM, or mine does anyways). They were being recorded in the cloud but because of traffic your system didn't know it. Of course you can't count on this. Just as often it isn't recording what it should be recording period and you never get it.
What do you mean downloaded? The X1 DVR has a hard drive, The X2 DVR is cloud based. That would mean swapping out boxes.
No swapping of boxes will be required. The update and new functionality included with the subsequent versions of X1 will occur automatically to current X1 boxes. You will hear more about that as we get closer to that happening.
The X1 is cloud based, but there is a HDD for the storeage of your recordings. From what i've read and seen in videos the X1 will upgrade to the X2 user interface and will store your recordings online/cloud, so if you ever have a box failure and have to switch it out you will not loose your recordings.