If you click on the Restore iPhone... button your iPhone is first completely erased of all data and media and all of its iOS settings are reset to their factory defaults. You then have the option to restore your phone's data from a previous backup made either to iTunes or iCloud.
Alternately, if you select the Restore Backup... button instead, your phone is not completely erased, but any data you restore from an earlier backup will overwrite any newer data that is currently on the phone.