Resetting a phone means restoring phone to it's factory defaults.
There are two types of resets: soft reset and hard reset.
Soft Reset: A "soft" reset is by far the most common type of reset any phone user will come across, and is often useful in solving minor problems and strange behavior. When you perform a soft reset of a phone, you are essentially causing the device to stop everything it is running, and restart - much like rebooting a PC.
Hard Reset Sometimes also referred to as a "factory reset", a hard reset is an extremely serious process, because performing a hard reset will always wipe all the data from your phone and return it to the settings it originally had when purchased.