It basically cleans up the Xbox of any data that may be corrupt. This includes the settings that you made for yourself, and your profile too. All your achievements and multiplayer data is kept as all that is saved to the cloud, and stored on your account.
When you reset your Xbox, you have the option to keep your games and apps or remove them as well. You can redownload them if you decide to remove them. Just make sure you remember your email and password that you use for your Xbox account, otherwise you
won't be able to re log back in on Xbox Live.