The big deal is Atmos being object based audio. Stereo and 5 or 7 channel surround are channel based audio. You mix directly the channels in use with the expectation playback also has that many channels.
With Atmos you have 128 object based virtual channels which allow you to put every item in a mix in a particular location anywhere around the listener. The Atmos processing takes care of how to do this, and no it doesn't expect 128 channels for playback. It in theory can take the parameters of the 128 objects and process them for a variety of playback channels that are two or higher. Can it do that even with say a 5 channel surround or even a 9 channel surround with 4 height speakers? I don't know, I've not any experience with it and am skeptical how well it works especially for say a soundbar. I can believe it may work pretty well with 5.1.4 or more channels.
We have already seen how even 5.1 systems are enough channels they don't displace stereo. There is limited adoption much of it because of the need for more channels. If anything I'd hazard a guess there are fewer two channel systems in homes than in the past. Soundbars are about all most people will put up with even while they spend money on big TVs. Most youngsters now have headphones rather than a two box two channel stereo.
I certainly hope it doesn't for reasons already mentioned that it is a proprietary closed format. I rather doubt it can replace stereo. Maybe in the sense that soundbars claim to be Atmos capable. Dolby has a long, long history of over-promising on multi-channel realism, and under delivering so they leave room to hype and invent the next new thing about every 5 years. Truth is if they thought Atmos were some sort of end game MCH system to finally displace stereo as king of the hill for a couple generations, they wouldn't release it. It would kill a cash cow for them.