Here are a few resources:

Role of Exercise in Arthritis Management

this site talks through the benefits of exercise and some overall advise or OA

There are now a number of high quality trials that show the benefits of exercise for OA hip and knee. In order to make sense of the findings of these trials a number of systematic reviews - TWo good ones are on Cochrane collaboration and if you like I can send you another a fairly recent review which reports on the long term effects of exercise. In this case there were demonstrable benefits short term but long term it was more difficult to sustain the benefits. However having "booster" exercise sessions after the initial exercise period had positive gains.

In terms of finding if exercise delays or avoids the need for surgery you have to dig a bit deeper but many of the trials do report on these outcomes. We have one large trial just being completed by my University - The MOA trial that looks at OA of the hip and knee and definitely looks at surgical need post treatment. the treatment consists of exercise, manual therapy (joint manipulation)or a combination of exercise with manual therapy. The results of the trial are not yet published but I hear all is going very well. Here is the protocol for the trial:

Trials | Full text | Exercise therapy, manual therapy, or both, for osteoarthritis of the hip or knee: a factorial randomised controlled trial protocol

I tried to find some information on the underlying physiology of exercise - ie why it works. However I have run out of time but in earlier stages I do know beneficial changes in cartilage are noted. In your case as the arthritis is probably quite advanced (bone-on-bone) the benefits may be more limited in terms of rebuilding cartilage but building up the muscles and improving the biomechanics of the joint are probably big advantages you can enjoy.