The Case sensitive parameter determines what will be negotiated. The Keep case parameter determines whether the matching text case is saved or not, replacing it with a replacement string.
Here is an example that should make this clear. Imagine you have this:
word Word
If Case insensitive is not selected and you are looking for a word , text from both lines will be selected. If selected, only the first, lowercase word will be matched.
Let's say we use tapioca as a replacement string. If Save Case is not selected (and Incorrect Case is not), the Replace All application will give you the following result:
tapioca tapioca
With the Retentive Case enabled, it will look like this:
tapioca tapioca
i., the second case of word will be saved and "applied" to the replacement string.