Your data wipe will do what it sounds like - it will erase everything on your phone, and you will have to sign into it much like you did the first day you bought the phone. Your contacts will get reimported from Gmail (and/or the Verizon backup service). Your paid apps will still be paid for and available in the market, but you'll have to go into "my apps" and download them. If you use a media sync program (I use DoubeTwist with AirSync) you'll have to sign back in but then all of your media (photos and videos) will get repopulated.
If you don't use a media or image backup, you'll want to back up your stuff with DropBox (or similar cloud storage solution) or pull the SD card and just transfer them to your computer in a card reader.
Any customization's you've done (like your background, or if you use an alternative launcher) will have to be set up again.
Most of this sounds more timing consuming that it really is in practice, but two things are fairly obnoxious and there's no easy workaround: 1) you will lose the data in your apps. So the high scores in your games, the login passwords in your apps, your previous text messages, etc., will all be lost. 2) Free apps don't currently get stored anywhere. You could join appbrain and make a backup there, or you could just make a list of the free apps you have (or heck, just trust that if they're really important you'll eventually remember to download them).
Without getting into much more advanced hackery you just have to live with those last two items. It's not a big deal to me, and I make a habit of wiping the phone after a major OS upgrade whether it's OTA or something else (like the current one). I think there are some SMS archival apps you could use if the content of your text messages are really valuable, and as I said, using a photo and media sync program can automated that part of recovery, much like your contacts are backed up automatically.
Either way it's a bit scary the first time you do it, but with a little prep you won't lost anything important, and you should be ready for the things you will lose. Good luck, and have fun! (really, it can be fun - it's often a good time to re-evaluate how your phone is set up, what apps you "really need", etc.).
Edit: I should really mention this as it happened to me: If you use Google 2-Step authentication to protect your accounts (if you don't know what this is, don't worry about it) be sure to turn it off before you wipe to make everything easier to set back up. You can still get around it even if you don't (trust me...) but it's a bit more of a pain in the butt, and may give you temporary chest pains