"Erase all content" means all of YOUR content, including all applications you have downloaded and all the data for those applications and all the data for Apple applications (i.e. It does NOT mean the device will be completely erased, as Apple insists certain applications and default settings remain on the device.
Subsequently, one may also ask, what is the difference between reset all settings and erase all content and settings?
Reset All Settings and Erase All Content and Settings do different things. Reset all Settings removes things like your Wifi password and settings you've set on your iPad for Apps, mail, etc. Erase All Content and Settings restores a device to it's out of the box state when it was first turned on.
What do you lose when you reset your iPhone?
Press "Restore" to confirm and begin the restore. If you made a backup prior to restoring, you can recover your lost data after the phone restarts by pressing "Restore Backup" in iTunes or by selecting "Restore from iCloud Backup" on the phone, depending on how you backed up your device.
What does restore default settings do?
"Restore PS3 System" will also delete all hard disk content. (You will lose all saved content from your PlayStation 3 system's hard drive if you use "Restore PS3 System"). The "Restore Default Settings" feature will only restore all of the following settings (and erase any previously saved settings): BD/DVD Settings.