Format Results
When you format the PS3's drive, all of your data will be deleted. This includes your save games, installed game content, videos, music, photos, user settings, XMB themes and login information. Your online account will remain untouched, and if you store any of your game saves using the PlayStation Network Server as part of PlayStation Plus, those save games will remain on your online account. After a format completes, you can still power on the PS3, but you'll have work through the initial setup process and reinstall any content you want back.
Format Utility
If you do need to format your hard drive, the PS3 has a "Format Utility" option in the XMB menu under "Settings," then "System settings." Formatting your PS3's hard drive is a good option if you're going to sell your console or if you're going to install a new hard drive. PS3s use 2.5-inch SATA hard drives, and since many laptops use the same type of hard drive, you could even swap out your PS3's drive for a laptop's if you want an upgrade.
Backing Up Data
Before performing a format, you should back up your data unless you don't mind losing it permanently. You can use the "Backup Utility" available in the XMB menu under "Settings," then "System settings." This allows you to back everything up at once to an external storage device, like a hard drive. Another option is to back up items individually to a storage device. You can do this for save games, video files and music files. Highlight your selection in the XMB menu and press the green triangle button on the controller; then select "Copy," and finally select the storage device. If you choose to subscribe to PlayStation Plus, you have additional online storage options you can use.
Notes
You should never turn off your PS3 while it's in the process of formatting its drive. If you turn off the console during a format, it could cause serious errors on the drive. Also, the power button on the console and the PS buttons on the controllers will not work during a format. In most cases, you can simply use the "Quick Format" option when you begin the format, but if you want a more thorough process, especially if you have sensitive data on the drive, you can select "Full Format," though that process can take much longer.