Paste Over Selection does not work from things copied outside Figma, or even copied from a different tab in Figma!
Open two documents in Figma
Select something in one of them, and press copy
Go to the other Figma tab
Press Paste Over Selection.
It will paste the last thing that was in the clipboard IN THAT FIGMA document
What should happen:
The last copied item in the clipboard should be pasted over the selection.
Win 10 x64