There are Applied Panels and there are Inset Panels.
Most people probably never paid enough attention to notice that there are two different types of panels.
Sometimes they are interchangeable but for exterior use many times they are not.
They each have their own purpose in design but the problem is that today you see Applied panels being used in place of Inset panels.
This substitution when done on the exterior of a house looks real bad.
Doing this is the cheap and lazy way of making something look good to the uninformed, but tacky to those that know.
Inset Panels
Inset panels look like panels on a door. The panel can be raised or recessed but either way the panel is a separate piece of wood surrounded by a wide border. Trim surrounds the panel providing a decorative appearance. The panel is not nailed but held in place by the frame around it. This design to allows for expansion and contraction and prevents the wood from warping.

Victorian Inset Bay Window Panels. Panel is recessed, surrounded by wider trim, and panel is framed by decorative molding.
On the exterior of a house, these inset panels are used for bays and pedestals that would support a porch column, or other exterior decorative features.
On the Interior, they CAN BE used for wainscoting and full paneled walls.
They are also used in doors but that is not the focus of this article.
Applied Panels
Applied panels are easy to make and merely just a frame made from pieces of trim. This frame is then applied to a flat surface. Applied panels are frequently used on the walls of Colonial Revival homes in parlors and even in bedrooms.
When using stained wood there must be of course a wood panel. If painted you can use the wall space as a panel instead of a separate piece of wood.
Frequent Mistakes with Exterior Panels
Lazy or possibly just untrained carpenters frequently replace Inset Panels with Applied Panels. Instead of repairing the wood of an inset panel with an epoxy or constructing a new panel, the carpenter may think people don’t know any better to tell the difference. They may do this without the homeowner’s knowledge. If they do inform the homeowner they may just say you could hardly tell the difference and it will cost less to construct. Please do NOT make this mistake.
How awful! In the images above, this homeowner needed to rebuild her porch. Unfortunately the builder opted to replace the pedestals – so much easier and faster than repairing it if you are a low-grade contractor. Worse case if it could not be restored, it should have been rebuilt exactly. If you can’t do it the right way, please sell the house to someone that can take care of it as it should be.
Panel Design & Construction – How & Why
These are all good videos that will give you a good understanding of all types of panels. The videos are about interior panels but there are examples of panel construction on walls and doors that can be followed for exterior panels.
Brent Hull shows how to design a full interior wall with applied panels.
Brent Hull shows details in attaching floating panels for the interior but this same method can be used on the exterior.
Why are Panels Necessary?
This video explains the history of doors and how inset panels prevent warping. Although the focus is on wood doors this information is used for exterior inset panels.
Applied Panels & Inset Panel Construction
This video by Gary Katz goes into a lot of detail. He shows different typed of panels on an interior wall. His methods for inset panels can be used for the exterior.
Agreed that the incorrect panel looks terrible. I’ve seen several examples of exactly what you show above, where a contractor has replaced exterior inset panels with modern framed lumber, with some trim stuck on the outside. I think there’s a couple of reasons for this – one is cost – building the modern way is certainly cheaper, another reason is knowledge/ignorance of Victorian building techniques – There are only a few contractors who actually understand that Victorians are framed / constructed differently than post war stick built houses. Most try to treat them as the same thing. They are not.