Chord substitution involves playing a different set of chords for a given chord progression. This is useful for both beginners and advanced players. Beginners will be able to substitute easier chords for a given chord line (e.g. working from sheet music); and advanced players will be able to embellish a chord progression, often creating a 'jazz' flavour.
Once again, here is the of chord substitutions for beginners. These substitutions work because the chords contain similar notes and hence have a similar sound.
Here is an example of simplifying a chord progression, by using the substitutions outlined in the previous table.
More advanced players can reverse the substitutions. E.g. for Am, play Am7, Am6 or perhaps use a combination of the two. Here are two examples of this direct substitution.
You could go even further with the progressions above, and use 11ths, 13ths or altered chords. You could also add in extra chords, e.g. in the final bar you could play F9 for the first two beats and then play F13 for the final two beats. Most Jazz and Fusion players get a basic chart and substitute higher extensions to create a Jazz sound. Substitution is usually done on the basis that the chord to be substituted has at least one (but usually two or more) notes in common with the original chord.
To substitute chords successfully, you need to know your chords well, see Progressive Complete Learn to Play Guitar Chord Manual. It is also a good idea to study chord substitution with a Jazz teacher, who will be able to show you some transcriptions of guitar parts by great players which use chord substitution. This aspect of playing can take a long time to become comfortable with, so be patient with it.