To make it even clearer, remember that the right side of the s///ge can be an arbitrary block. Here's the "Perl Bowling" style written for clarity:

{ my $count = 0;
  $string =~ s{($pattern)}{
    my $source = $1;
    $count++;
    if ($count == $target) {
      $source = $replacement; # replace!
    }
    $source;  # either original or replacement now
  }ge;
};
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And yes, you can actually write it like that, just as you see. If you're doing anything odd in the right hand side in a s///e, I recommend expanding it out like that.

-- Randal L. Schwartz, Perl hacker