If you exclude a folder from copying, it's not in the list of files that are being copied to the destination. What happens on the destination volume is determined by the "During copy" option.
"Erase, then copy" and "Smart Update" would replicate the selected files on the destination, removing anything that wasn't in the selected set of files (save for Time Machine data, as explained in the "What's going to happen?" part of the UI). "Copy Newer" or "Copy Different" would not remove anything... but also wouldn't produce a bootable copy.
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--Dave Nanian
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