Stolen iPhone - Activation Lock email
I would take extreme care not to enter your current or former Apple-ID passwords anywhere when following any kinds of directions from emails. The email you have received might well be a fake email sent by the people holding your phone, trying to trick you into giving them your Apple-ID password.

In general, they can do very little with a phone that has been activation locked. However if the phone is unlocked, they can find your e-email address and try to scam you into giving them the code. 

Depending on their technical abilities, they might also have put the phone on a restricted network, where the commands to erase it cannot reach it, but where it can reach other destinations on the Internet.