There are a few theories floating about. I think! I'm not too sure!
It resets the team to default money & moves you to the Rookie Tier.
You do not lose your levels when you reset, all the Facilities & Staff remain the same too.
Personally I don't like this option. The few times teams used it then they dominated the rookie tier, losing teams in pro (less populated tier) and blocking 1 promotion seat in rookie ..