In my opinion both “Reply as Linked Topic” and “Reply as New Topic” are essentially correct. The OCD side of my brain would actually prefer
"Reply by Linking to New Topic Rather Than Continuing to Hijack Current Discussion"
But that’s a bit much, I suppose. 
I disagree. Sometimes a new thread of discussion is a reply. And that is what “Reply as Linked (New) Topic” is about.
Your question posted to the “Do Diabetes Pharma Companies Have a Monopoly?” discussion topic didn’t seem to fit with discussing pharma monopolies. Rather than replying in that thread and continuing to “clutter” it up, I replied by creating a new thread in a hopefully more appropriate category using the button.
I consider the key thing here to be that your original question post and this new thread are linked. This makes it more likely that anyone who comes across this topic in the future and wonders "What the ■■■■ is going on here?" will be able to sort it out. They’ll have access to the history of the discussion and be able to better see how it developed.
The simple fact is that Thread Hijacking does happen. The solutions I have seen in other venues were either (1) just accept it and try to ignore it or (2) try to hammer out an ad hoc kludgy solution by creating another thread and then trying to get everyone to move the hijack to the new, more appropriate discussion topic.
The button is just an attempt to create a more formal and consistent tool to accomplish what people sometimes try to do on their own.
Does it work as well as one might wish? Probably not. 
Is it better than leaving people to fend for themselves? I would expect opinions to vary, but I think it’s at least an improvement. 