One practice that I use a lot is to drag and drop a SwiftPM package into my project when I want to make local edits - this replaces the remote dependency with a local dependency. Then I can edit and make changes to the dependency.
When I am done, I remove that directory and Xcode would revert back to the remote package.
In Xcode 16 this feature does not seem to work anymore, and instead it offers to copy the files into the project.
Adding a file reference to an existing package into an Xcode project can still be completed in Xcode 16. And as you pointed out it will can be used to replace the remote dependency with a local dependency.
The popup button in the new files interaction panel offers 3 options:
If you select "Reference files in place" you will have the same behavior as in Xcode 15.