Phone has gained 'Artificial Intelligence' and doing dumb things on its' own

I've seen posts with similar problems. Freezes, makes calls on it's own, the icons get twitchy, opens the wrong one. The hardware buttons (Return, home, etc.) aren't working right either. I turned off the animations and it helped a little. I see instructions for "Factory Data Reset." What does it mean "Erase EVERYTHING?" Sounds scary. If I get a new phone, what comes with me on the memory card?

Steps Factory Reset below

  1.   From the home screen, select the App menu.
  2. Select Settings.
    Note If the application icon is missing, select App menu filter (located at the top) then select All apps.
  3. Select Privacy.
  4. From the Personal data section, select Factory Data Reset.
  5. Select Reset phone.
    Note If presented, enter the current  pass-code or draw the unlock pattern.
  6. Select Erase Everything.
    Note Allow up to 3 minutes for the factory data reset and reboot processes to complete.
  7. Perform initial set up.