It's essentially resetting the phone to the state in which you bought it. Unless you've downloaded any OTA updates, in which case it will delete all apps etc to give you a clean version of that specific version.
It may improve battery life, but I don't believe there's any conclusive evidence to support that. Likewise it may improve performance as all the apps you've installed will be deleted, but if you've linked it to the same google/market account, all the apps will download again anyway.
There's certainly no harm in doing so, but it would be more advisable to root out the source of any problems first. Rogue app, setting etc. Is there anything you've got an issue with?