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It is literal. It means substituting one of something for exactly one of something else.
If I give you a recipe for cake and it includes an ingredient of 1/3 of a cup of white sugar and the notation says you have the option of substituting brown sugar on a 'one to one' ratio than you would simply have the option of choosing to use 1/3 of a cup of brown sugar in place of the 1/3 of a cup of white sugar.
It is a literal exchange rate of equal ratio.
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