There are two kinds of placing out: substitutions and waivers. Either can be done on the basis of previous graduate coursework. There might be exceptional cases, for example, students with extensive work experience.
Substitution is when a student takes a non-star Ph.D.-level course instead of a star course. For example, if a student took courses in advanced operating systems, distributed systems, databases, and networking already, instead of taking one of our Software Systems star courses, he or she might wish to use the Mobile Computing course to satisfy the Software Systems area requirement. In essence, substitution gives the student another free elective, where the choice is somewhat limited (to courses within the area).
The mechanism for substitution is to obtain approval from the relevant instructors in charge of both courses and from the Area Advocate. Each year the DRC identifies an Area Advocate, someone who is not the course instructor, for each of the five areas. We use the term ``Advocate'' because, like a lawyer, he or she speaks on behalf of the student who desires to place out. Requests for substitution should mostly be granted. See http://www.cs.cmu.edu/~csd-phd/courses.html for a current list of area advocates.
Waiving a course requirement implies reducing the total number of units a student must take. For example, a student coming in with a Masters degree might be able to get waivers for three star courses and one 12-unit elective because he or she has already taken similar courses elsewhere. In this case, the student need only take two star courses and two more 12-unit electives. (The Department requires that a minimum of 24 university units be taken at Carnegie Mellon.)
The mechanism for the waiver of a course requirement is for the student to contact the Director of Graduate Programs or the responsible Area Advocate with the course syllabus and other supporting materials used in the course taken already. The decision made by the Director of Graduate Programs, in consultation with the Area Advocate and relevant Carnegie Mellon course faculty, may be immediate or conditional, based on having the student either (1) take and pass an oral exam (conducted by the Area Advocate and the instructor(s) of the course to be waived), or (2) take and pass its final exam. Doing a side project is not a possible condition for waiving a course requirements. The expectation is that waivers should be easily granted in the obvious cases, but only rarely requested.