Erasing and reinstalling computer OS?

Alright, my grandpa gave me his computer (Windows Vista Home Basic 32BIT) and when I got it, I realized that there were tons of problems with the computer.

I was wondering if I could insert the "Reinstallation DVD" into the computer and it erase EVERYTHING and reinstall Windows Vista?

I asked my friend if that was a good idea and he said that that wasn't what I was wanting to do because that disc is only for when the OS crashes. But I inserted it not too long ago and it said that if I ran the disc that it would erase all of my files, settings, and programs, and reset it just like it was a new computer.

And I told my friend this and he still said that's not what I do to do that.

He said I should "wipe my HD".

Isn't that what this disc does?

The disc label states exactly this...

"OPERATING SYSTEM

ALREADY INSTALLED ON YOUR COMPUTER

Reinstallation DVD

Windows Vista™ Home Basic 32BIT

The software is already installed on your computer. Only use this DVD to reinstall the operating system on a Dell™ PC.

Support for these products is provided by Dell.

For Distribution Only With a New Dell PC."

I told my friend everything that I stated here and he still said that this isn't what I want to do...

I'm asking you guys.

Does this disc remove EVERYTHING, and reinstall Windows Vista?

(I know I probably answered my own questions but just give me your opinion!)

Thanks!(:

NO STUPID ANSWERS!!!