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Perhaps my movie-making knowledge is not up to snuff...but can either of you enlighten me as to what they mean by "erasing" the actor from the scenes or "painting him out" of the scene. Why, if they had him doing the facial motions and the body motions would he then be gone from the performance? Do they just mean removing his actual face, or do they mean they just used his movements as guides for the animation?

I don't get what they mean by this, exactly.

They used his on screen movements as a basis for his character. He was filmed with the other actors but when the special effects crew worked on the film later, he was digitally removed and replaced with the computer generated version of Gollum.

From an interview with Peter Jackson:

"One of the biggest challenges has been creating Gollum as an actor rather than a CG creature," Jackson continues. "This is really the first case I can think of where a computer-generated creature has had to be a dramatic actor. Jar Jar Binks was a comic-relief sidekick, but Gollum has to deliver a performance that is as complex and compelling as anything Elijah or Sean do. He can't be anything less — he shares scenes with them, he has dialogue with them. He has to have the same emotional impact. One tough aspect is just his physical look. You want a CG character not to look like a CG character, and to have very realistic skin and hair, eyes, movements and everything else. Then it's how you get this computer thing to act in a way that's as good as a human being.
"Andy Serkis, a British actor we used, has really been the key to that. Andy was cast along with the rest of the actors way back in 1999, and he was out in New Zealand for the full 18 months of the shoot. He also appears in Return of the King. He was on set with Elijah and Sean and blocked the scenes with them. He was Gollum; he did the voice. Every time they're looking at Gollum, they're actually looking at Andy. We shot empty plates so we could paint him out. It wasn't quite the Harryhausen technique, in which you have the actors performing to a golf ball or a mark on the wall and pretending the creature is there. We did it the other way around in that we had the actor in the scene with them so that they could act with somebody, and then we removed him entirely and replaced him with a computer version of the character. Even in postproduction, Andy has remained on board to provide the final voice tracks for Gollum.