With Midi you would actually be better off to just open the Piano Roll View (PRV) and fix the notes using the smart tool.. You'll really want to learn how to do midi editing as it make life grand!
I'm no keyboard wiz so I just hack out my parts with wild abandon and go back and spend a month fixing it up... just kidding, I try and play my part as well as possible and then play trough the song with the PRV on full screen looking and listening for mistakes. I can even embelish my lame 3 finger chords and add more to them,
My routine is to play the part through a few times until I've gotten as good as I'm going to get. Hit record.
Then I save it.
I open the PRV and determine the note resolution buy changing the grid. Once I see the lowest resolution ,say 16th notes, I quantize to that amount.
Now I run through the song scrutinizing the notes and adding and subtracting as I go.
As far as auto punching in and out goes when you set a punch point the old part is muted during the recording.
In cases where you need guidance it is better to just insert a new midi track and play along with the original. Now you can just cut and paste to add the new part to the original. There is also the Comping feature which I don't use but some people like it.
In preferences you'll fine "recording" and there are 3 options for re- recording.. Comping, Overwrite and sound on sound.
The deault is Comping so I'll assume your using that.
When you hit record at measure 10 it will be recording a new lane but I guess you won't hear the original.
To hear the original up untill 12 you need to use auto punch in/out.
You can enter punch in and out points using the tool you'll find up in the task bar. You just highlight from 12 to 14 using the timeline and only that will be recorded.