It ERASES everything in the memory card. Permanently!
Formatting is important to organize the file system of your storage device. If not performed, your files (pictures, videos, etc.) will get corrupted and won't be saved or copied completely. You will lose them. There is no recovery method for those.
You can format using the device or in the computer. When formatting 2GB and up, set to FAT32 first (even with Mac's).
Now you know!