Chord substitution involves playing a different set of chords for a given chord progression. This is useful for both beginners and advanced players. Beginners can substitute easier chords for a given chord line (e.g., working from sheet music); and advanced players can embellish a chord progression, often creating a "jazz" flavour.
Once again, here are some useful chord substitutions for beginners. These substitutions work because the chords contain similar notes and hence have a similar sound.
The following chord progression has been simplified using the substitutions shown here.
More advanced players can reverse the substitutions. For example, for Am, play Am7, Am6 or perhaps use a combination of the two. Here are two examples of this direct substitution.
This progression can be taken even further with the use of 11th, 13th and altered chord substitutions. 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.
It is also a good idea to study chord substitution with a teacher, who will be able to show you some transcriptions of banjo 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.