Exactly. I always thought of it as just taking out the ''broken parts'', and replacing them with scavenged ones. Always thought it was weird though that the npc's could repair something just like magic. I thought they might have been using like scrap metal and a workbench to repair the item (i.e. for a gun, they actually make a replacement part to replace the broken one), but then I thought "Why can't we?"
But I say that in F: NV a 0% item should still be repairable, just unusable. i.e. if you have one broken 10mm pistol, and scavenge another one, you take parts from the broken one and swap them out with parts that are worse off in the scavenged one.
Might make some sense though if we could repair guns (and maybe armor too) at a workbench with ''scrap metal'' and other misc items like that.
FONV will have "Repair Kits" which will be used for the same purpose.
If you had the MZ expansion, you could use Alien Epoxy to repair weapons in FO3.
As for repair in general, I just thought it was weird that one weapon would just "disappear" after repairing. I think it would have been cooler if you have some "leftover" [Name of Gun or Armor] repair parts, provided of course you had extra percentage points left over. I mean it's a violation of the conservation of mass!

Still, it did come in handy when you just cleaned out a raider camp and were able to make room in your inventory by merging 10 badly repaired Raider Armor into 3-4 100% condition Raider Armor...