Erase does a full erase of the MCU's program space flash memory - leaving only the read-only USB bootloader - which makes the port show up a Bossa Programming Port - but it can be programmed from the IDE just the same.
The reason for it is that the regular DigiX bootloader runs in program space, so if your program crashes (overrun, 100% cpu, etc) it won't be able to be reprogrammed - you can then hit erase (and then reset) to go back to the read only bootloader, program, and be back in the game