What does Iphone in Recovery mode mean?

I connected my iphone to itunes and a message poped up asking if i would like to update my phone. I said yes. And after waiting for a while i got a message saying that it was unable to download because an error had occured. I am now unable to connect / use my phone. When plugged into itunes, it say that a iphone in recovery mode has been detected. It also says that i must restore my iphone. What is recovery mode? and What will be erase if i restore? I have all of my music and apps on my computer in itunes.