"Possibly unwanted Prefab replacement"??

When I drag & drop one prefab onto another in the project view, I expect that prefab to become a child of the destination of my drag. Why does it ask me to replace it? I don't understand what it means. To make this even more confusing, there's a line that is drawn between two sibling prefabs as if I'm able to place it between them, however it still asks me to replace!

The project view is where the prefabs are stored , which means that dragging something onto a prefab in the project view will override the prefab. You need to do the parenting in the hierarchy view in a scene, which will not replace the prefabs (Although adding children to a prefab will lose the "prefab connection", meaning that you would need to make a new one for the combined objects)