I've just reached the Institute and for the most part they seem pretty benign.

So far no one has explained why they've been kidnapping people on the surface and replacing them with synths.

Is there some dark secret I'm missing here?

It seems to be a mix of "for the Greater Good" and "Because Science".

With a subtext of "screw the surface world, the future is underground".

yes, they did it with the major in diamond city, this is evil but makes some sense.

They also did it with an farmer to test some new crops. Why not send him to an settlement who need more people, plenty are not able to grow all food, also many empty ones.

On the other hand the scare is a bit overblown, raiders and suppermutants is an larger everyday danger

I believe it's referred to as an "Infiltrator" program and is mainly geared toward surveillance and intelligence-gathering. I find it hard to believe that they would start a program with the goal of replacing ~everyone~ above-ground with a synth. Makes me wonder what kind of job "Art" has, that he warrants having a synth replacement.

For that matter, who is to say that the Railroad isn't replacing humans (possibly dead humans) with mind-wiped Synths to give them a new life. I don't recall ever getting a solid explanation for the replacement program directly from anyone; it's usually just inferred from terminals and so on. In any event, I do not consider it to be a core tenet of the Institute, but rather a very specific, focused, goal-oriented program run by the security folk.

The Institute its self is all nice and shiny largely because the have Synths to do all the dirty work.

The Infiltration program allows them to place their Gen-3 Synths into the human communities to allow them to gather intelligence and deal with threats as they emerge......of course those replaced locals are either murdered allowing their replacement or (until its sabotaging by Virgil) taken to be used as test subjects in their FEV program. However we also know that they replaced a farmer so that they could use his settlement for a horticulture experiment so their belief that they can use the locals as resources isn't limited to the Security branch.

The Institute is also quite open in regarding the humans of the surface as lessers compared to them and has an established doctrine that their scientists can use those locals in their experiments.

Railroad wise, they are apparently creating new 'people' (with new memories) rather than replacing existing settlers, although their actions have also probably added to the fear in the Commonwealth since everybody will assume that the exposed Synth was an Institute Infiltrator rather than a Railroad reprogrammed Synth.