Will reinstalling Lion erase all my documents and applications?
Lion does not offer any customizations during the installation process. Thus a reinstallation is about as smooth and as linear as possible.

You restart your Mac holding the OPTION key when you hear the tone. You will then be greeted with various partitions you can use instead of the main Lion partition.



Should you wish to simply reinstall Lion, you would select the Recovery HD partition. Once loaded, you just need to follow the prompts and install it over your current Lion installation.

The new installation will replace all the core system files, but leave your user profile and data complete untouched. Your music, documents, even passwords and bookmarks, and applications will not touched; none of your personal information will be deleted (nor will it backup your old system, as was common in older OS X versions). It is a seamless process that simply rolls Lion back to the default installation build. There will be nothing lost and no disk spaced wasted on old system files.

You can read about the process over at Apple.

Note: It was the case that older builds of OS X allowed various types of reinstallations (like Archive and Install or a complete erase), but these have been omitted in Lion, greatly simplifying the process.