That’s a relief, but they really ought to reword it now that we are exclusively on iOS devices:
What it actually does: Erase the iTunes media only, nothing else is erased
For example, if you have a large music library on the iPhone and click on the Erase and Sync button, that music library will instantly vanish, but all of your contacts, photos, apps, customizations, and other media remains untouched on the iPhone. Only the music and iTunes content will disappear. That means the entire large music library will vanish, but nothing else will.