Robo Substitute functions like Clefairy Doll from Base Set. While it is in your hand, deck, discard, or anywhere other than your bench or active zone, it counts as an Item. It needs to be "played" during your turn to be placed on the field however, and therrefore (like Clefairy Doll) can't be put on the field from your opening hand (setup phase) until the game actually begins and it's your turn. You play the card by benching it, as you would any other basic Pokemon. It does not replace your active when it hits the field; it just goes to your bench. You are not the first person I have heard ask about Robo Substitute replacing the active Pokemon, but there is no such text on the card; this was most likely an error in an unofficial translation.
Once Robo Substitute hits the field however, it is considered a basic Pokemon with 30HP instead of an Item card, and remains as such until it leaves play. That said, you can do almost anything with it that you would a basic Pokemon. You can attach tools and energy cards to it (though there isn't much point since it has no attacks and can't retreat), and it's affected by anything on the field that would affect a basic Pokemon, such as Abilities and special conditions (this is a difference from Clefairy Doll), and would count toward Empoleon DRX's Attack Command. The only differences are that it's not able to retreat, if it's Knocked Out your opponent takes no prizes, and you may discard it from play at any time during your turn before attacking. This is simply text on the card and not considered an Ability, so Garbotoxin has no effect on it. A Float Stone will not let you retreat Robo Substitute because the card specifically says it can't retreat at all, but you can use Switch, Rush In, etc. to get it out of the active slot, since this doesn't count as retreating. While in play, it is a valid target for any card that targets Pokemon in play, such as AZ, Cassius, etc. You can still discard it if you are under item lock, since it's already in play, but you wouldn't be able to drop a new one from your hand.
Once Robo Substitute leaves play, regardless of whether it's KOed, willingly discarded or whatever, it goes back to being an Item; it's only a Pokemon while in play. Therefore if it's in the discard it is not counted toward Flareon's Vengeance because it's no longer a Pokemon. It can't be put back in the deck via Sacred Ash or affected by any other card that targets Pokemon in the discard pile, because it's an Item at this point. It can however be a valid target for Dowsing Machine, Pickup, Junk Hunt (in Expanded),etc, since it counts as a Trainer/Item while not in play.
I hope this was a comprehensive explanation of how Robo Substitute works. It's been a while since the game has seen a card like this, so I'm sure you're not the only player who's confused on how it works. Also, be sure to compliment Robo Substitute on its nice Kanye glasses as you place it on the field!
Edit: Sniped!
I understand a lot more about this card now.