This kind of reset erases all data from you phone and sets it back to factory settings (the way it came when you bought it).
This can sometimes be necessary if your phone is soft #dic:bricked or otherwise majorly screwed up.
Before you do this you should definitely create a thorough #dic:backup if possible.
If you can still boot your phone you can perform a reset in Settings → Backup & Restore.
If not, you’ll have to go through #dic:recoverymode.