If it is a host nation (USA, Canada, China, France, Russia, Japan), then they are allowed up to three competitors/teams in each discipline. If a home country skater withdraws, then yes, they are able to replace them with another skater of their choosing. However, say that Jeremy Abbott withdraws from Cup of Russia. It does not mean that another American skater will fill his spot. It would most likely be someone within the top 24 seasons best list from 2010 or someone in the top 24 World Standings who does not yet have two events.