Q: What do the new "Refresh and Remove everything" options do in Windows 8?

A: Windows 8 introduces many new features to help in the management and recovery of the OS. Two very nice features are the option Remove everything and reinstall Windows (formally known as Reset your PC in the beta but I believe caused confusion with users from a normal PC reset) and Refresh your PC. 

Remove everything and reinstall Windows basically wipes all data, applications, and the OS for the machine and reinstalls the Windows 8 OS, essentially resetting the OS back to its clean state. Refresh your PC captures your data, Metro-style applications (not desktop applications) and key OSs, reinstalls Windows 8, then reapplies the captured settings, data and Metro-style applications.

The process works by booting into the Windows Recovery Environment (RE), capturing the required data (if performing a Refresh), wiping the disk, installing a fresh copy of Windows 8 from the recovery image, applying captured data, apps and settings (if performing a Refresh) then rebooting.

Because all the work is done from Windows RE, it is also possible to perform the Refresh and Reset directly from the Windows RE environment or from the General section of PC settings (see screen shot below).

Windows 8 Settings

The actual Windows image applied will depend on how your computer was delivered. OEMs will be able to place the original OS image they provide on a hidden partition and register that hidden image with the Windows 8 Refresh and Remove everything feature, which will then be used. For other installations without this existing recovery image stored locally,  users will be prompted for the Windows 8 installation media, which will be used.

It is possible to create your own recovery image and configure Windows 8 to use it with the recimg.exe tool. To check the existing recovery image use this command:

recimg /showcurrent

To create and register a new image use:

recimg /createimage 

Individuals and organizations may choose to create their own recovery image, which could contain specific desktop applications and configurations that aren't captured and restored using the Refresh your PC option.

Microsoft's MSDN blog has some nice additional information on these features.