Hello, macscale!
The "Restore iPhone" will remove any information on the phone. However, if a backup is created before the restore process, that backup can be used to restore all of your apps, music, settings, etc. back to the iPhone.
For what it's worth, the "Restore iPhone" button would only be useful when there's an issue with the device that other options haven't been able to resolve. In short, if the iPhone is working as you'd expect, you'd likely want to avoid Restoring the device.
iTunes: Restoring iOS software
http://support.apple.com/kb/HT1414
Try restoring the iOS device if backing up anderasing all content and settings doesn't resolve the issue. Using iTunes to restore iOS devices is part of standard isolation troubleshooting. Restoring your device will delete all data and content, including songs, videos, contacts, photos, and calendar information, and will restore all settings to their factory condition.
All the best,
Allen