It basically cleans up the game and removes any glitches it may have picked up, as sometimes savegames with glitches can infect other games. To save your downloads and Sims, etc, you can move the Downloads folder into a safe location before uninstalling, and your Library folder as well. Downloads contains everything you've downloaded (including store content, which you can also reinstall from your Purchase History on your Sims 3 account), and Library includes lots and sims that you've saved - I'm not sure about patterns, perhaps someone else can clarify...
You'll need to reinstall all the downloads, but if you move the folder back to where it was after reinstalling, they'll all be visible in the launcher, and you can install them all at once.
Reinstalling them in the order that they came out - each pack has all the patches up to that point, it's just better for your game to reinstall them in order - they're designed to add-on to what's gone before. All else being equal, it won't hurt to do it in that order, and could save you some headaches. If you patch up between reinstalling each expansion, this can mess things up to, so it's best to reinstall everything and then patch up.
The factory reinstall is probably your best option, to be honest - there are isntructions on this forum, and it takes much less time, and is simpler. You'll still need to move your Library and Downloads, and you'll lose your save games, but to be honest, it's worth losing the save games, as if they're glitched, it'll just continue the problem.
