Will CIRQA work as a reference HR device on the bicep during testing?

Almost certainly yes for heart rate accuracy. The bicep is a flatter surface with less motion artefact than the wrist, and Garmin officially supports bicep wear with a dedicated band. Automatic sport and activity detection is unreliable from the upper arm because the algorithms are trained on wrist data. Still, for structured test sessions started manually, that limitation does not apply.

Can Garmin CIRQA replace a sports watch for Garmin Edge cyclists?

For HR and recovery, yes. A cyclist using a Garmin Edge as their primary device can wear CIRQA on the bicep during rides to broadcast accurate heart rate to the Edge via ANT+ or BLE, then continue tracking sleep and recovery the rest of the day. There is no GPS in CIRQA, so route and distance data still come from the Edge. No Garmin watch is required at any point in that setup.

Does wearing CIRQA mean I no longer need to wear a sports watch all day?

If you are already in the Garmin ecosystem, yes, in practice. CIRQA feeds recovery, sleep, HRV status and Body Battery into Garmin Connect continuously, which is the main reason to wear a watch during non-sport hours. Your primary sports watch can then stay on the wrist only for training sessions.