You can go to Settings - Auto download - Subscriptions- New Episodes- select the number you want to keep the unplayed episodes (global setting).  

Or you can go to Settings - Auto download - Subscriptions - Customize- set for each podcast the number you want to keep the unplayed episodes.

For example, if you subscribe to a new podcast and you choose to auto download 3 new episodes by default, when new episodes come out later, it will auto download and keep the latest three episodes, which means old and unplayed episodes will be replaced. 

However, it doesn't mean the current  3 latest episodes will be downloaded immediately after you subscribe to the podcast/change the setting. It will only auto download the latest one episode when you subscribe to a new podcast.

So this feature only works for new episodes released after you subscribed to this podcast/change the setting.