Does "Erase and Sync" remove photos taken on the phone?
You are right to be cautious. The erase and sync dialogue does not tell you which specific pieces of information will be erased.

You will want to tab through each of the places where iTunes allows you to choose synchronization and make sure that photos are not checked.

With that one item, you should be safe from having your photos erased, but making a back up would be a good thing to do before you allow the erasing of unenumerated anything. Also, verify that photos are included in the back up by verifying settings in iOS if you use iCloud  to do the backup. 



Here's the screen showing whether you have photos sync enabled or disabled. In my case, the iCloud settings has eliminated the chance I could erase photos over USB via iTunes.