How to replace a word with new line

Use this:

sed 's/|END|/\n/g' test.txt

What you attempted doesn't work because sed uses basic regular expressions, and your sed implementation has a \| operator meaning “or” (a common extension to BRE), so what you wrote replaces (empty string or END or empty string) by a newline.

The following worked fine for me:

$ sed 's/|END|/\
/g' foobar
T|somthing|something
T|something2|something2

Notice that I just put a backslash followed by the enter key.

You can use awk:

$ awk -F'\\|END\\|' '{$1=$1}1' OFS='\n' file
T|somthing|something
T|something2|something2

• -F'\\|END\\|' set field separator to |END|
• OFS='\n' set ouput field separator to newline
• $1=$1 cause awk reconstruct $0 with OFS as field separator
• 1 is a true value, causeawk print the whole input line