There's a few questions that came to mind when reading the entry, and in part there's a couple of things that seem unclear.
The first is whether or not the spell known is meant to be in addition to the spell known list, or in place of the spell known gained at that level.
Second, is it shackled down to the specific spell levels available when you got the spell? Or are you able to reassign it to a higher level spell when you're reallocating spells known at a higher level. For example, when reallocating spells at level 17, can they take a 6th level wizard spell in exchange for returning the 14th level spell to being a bard spell? Or more likely, swapping the 2nd level Wizard Spell for a 3rd Level Wizard spell at Bard level 8?
... This is of course assuming that the number of spells known per level remain the same as what's listed on the Spells known table even after the swap. Its just swapping which one the expanded repertoire applies to.
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1) It is "in addition" to normal Spells Known progression.
2) Yes, that is what "The spell must be of a level he can cast." means.
3) You can use re-training to swap out Expanded Repertoire spells, as the normal Bard spell re-training rules don't care how you learned your spells known (same w/ Expanded Arcana Feat), but those re-training rules don't allow you to select another Wizard spell, only Bard spells (which the Expanded Repertoire spells are effectively treated as for you, per FAQ: http://paizo.com/paizo/faq/v5748nruor1fm#v5748eaic9s54)