To replace by something new; specifically in law, to replace by a new obligation, debt, etc.
1. The introduction of something new; a change, an innovation. (Scots, obsolete)
2. The substitution of a new debtor, creditor, contract, etc. in place of an old one.
I've most commonly encountered novation in the second sense and in the situation of company acquisitions etc. X has a contract to provide a service to Y; when X is bought by Z the contract with Y is novated from X to Z, but only by mutual agreement of the parties through a legal process. It applies equally to company contracts and to moving your bank account during a take-over/acquisition.
The earliest use recorded by the OED is from Speed's History of Great Britain of 1611.