For the record, you are only clearing NVRAM on the mpu and the EEPROM on the backplane.
When you clear, you are basically "reformatting" the NVRAM and the eeprom to an empty state. The hard drive does not get erased and the 2GB stick is RAM, which is cleared every time you power off. When the game boots up with an OS and Game card, the OS will look at NVRAM to get the configuration information, if it has been cleared, it will initiate the game install routines, which entails formatting the drive, copying the game card's image to the hard drive, write out machine configuration like game and os versions, and then completes the configuration when you are done entering the values during setup. The NVRAM is kept after power off because the two CR-2032 batteries provide power to the circuit that keeps the information after power is off (thus Non-Volatile Ram). That's why when you replace the batteries, you have to do a clear since the configuration information gets wiped out.