The "used to" form indicates a habit. A habit of the past.
The example sentence you have given us indicates that perfectly.
Aunt Stephenie used to live in Chicago.
I encountered many sentences like these in exercises and most of them had a time indication at the end as well. eg: for 10 years etc ... .
It's considered as a habit because it is often about a long stretch of time. A periode in somebody's life.
"would" and "used to" are interchangeable in your first example sentence.
When they were students, they used to go/would go skiing every winter.
However you may use both here, personaly I prefer "used to go" as well here. And that for the same reason, 'cause it's a habit. The word that indicates the habit here is "every winter".
It's correct that you have to use "used to" in the following sentence; Aunt Stephanie would live in Chicago. This sentence is incorrect because the meaning changes completely. It doens't have anything to do anymore with a habit nor the past.
Then this sentence can refer to an "if-clause"
eg: If she wins the lottery, she would move to Chicago
It is more about predictions then.