In the field of computer formatting symbols, we speak of 'finding and replacing', or simply 'replacing' - definitely not converting in this context.

CRLF does stand for carriage return/ line feed as you correctly say, but the term itself is a relic from when typewriters were used and the carriage had to be manually returned to its original position to start a fresh line. It's very rarely used as an acronym like this today (maybe because it could be too easily confused with the Control [CTRL] key on the UK-EN keyboard), and is more commonly referred to as a line break or hard return. It looks like a bent arrow pointing backwards at the end of a line. As a formatting symbol, it's commonly used in web pages to make the text line wrap around - but it can mess up the formatting when you copy and paste, which is why they need to be replaced with the ¶, known as a paragraph mark or pilcrow.

So I'd translate this as "... text breaks must be replaced with a ¶ character".

Hope this helps.

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Note added at 1 hr (2008-09-25 19:34:27 GMT)
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Additional references for finding and replacing formatting characters:

http://word.tips.net/Pages/T000520_Changing_How_Footnote_Ref...

http://www.experts-exchange.com/Software/Office_Productivity...

Note they discuss converting a file, but replacing corrupt formatting characters within that file in this second reference.