Will units who are obsolete be upgraded to an equivalent unit that is built fresh from the factories?
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Depends on the unit. Ships can't upgrade their hulls, engines, and main guns, but AA guns, radar, torpedoes, and ASW equipment can upgrade. Aircraft, tanks, and infantry will eventually upgrade to the newest tech level over a period of time, depending on funding through the top slider on the production screen. You can also put some units back into the production queue to upgrade them to a different class of unit, such as upgrading cavalry to armor, using the wrench icon on the unit's own display window.
The normal service life of combat aircraft was actually rather limited at time, in reality, and replacement aircraft were frequently sent to replace losses or those grounded by serious problems, so they upgrade in the game like other ground units. Ships, on the other hand, were generally operated for years until they were decommissioned and scrapped.