This is only for tickets booked online via the IRCTC website, not ones purchased over the counter. Once the chart is prepared, if you are still wait-listed, you will get an SMS informing you of the Vikalp option, including your new train, with the coach and berth numbers. You have the option to chose the Vikalp option that is offered or cancel the existing ticket.
If you opt for the Vikalp option, you can upgrade to another higher class in the new train by paying the difference in cost. For instance, if you had an AC3 ticket but under Vikalp, you got a sleeper class berth, you would pay the difference to upgrade to AC3 in the new train if a berth was available, which doesn’t actually make much sense to me. That’s the one drawback I can see.
If you accept Vikalp and then cancel, the cancellation will be treated as a confirmed ticket. The refund won’t be calculated on the basis of the original wait-listed ticket.
From April 1st, Vikalp will be available nationwide, although they have been doing this on a pilot basis on certain routes since November.