I'm completely new to this so I apologize if these are things most people already know the answers to. 1. Does this method clear my phone of everything? Or will my apps, contacts, etc still be there? 2. What exactly does the custom recovery do?
If you do it correctly your apps and data should remain intact. Custom recovery replaces stock recovery. It has many more options such as the ability to flash (install) custom features and roms and make backups of your system. Stock recovery is limited to doing a factory reset and flashing official ota updates.