What I have seen is that m2e rereads the pom.xml looking up dependencies and then updating options in the .setttings and updating the .classpath with possibly updated JAR files. But this is just what I have observed with my projects. Depending on what is configured in pom.xml, there might be additional changes.
In general, this menu option gives m2e a chance to refresh the Eclipse-specific configuration to conform better with the pom.xml.
By the way, if you want a "exact" answer, get a directory and file diff/sync app. Make a copy of your project then click the menu item and then compare the old to the new. Or place your project under version control and after clicking the menu item, do a commit and let the commit dialog show you the differences (that is how I found out what it does).