Basically, it just removes the name from the list. It only removes the name: it has no effect on the file itself.

It's a handy button especially for people like me who have the "clear completed downloads" unchecked in the options. It's also a nice check on which of the "Awaiting sources" have giving up trying.

Go ahead and use it. You can always re-add a file to the list by going to the Library's Incomplete folder and resuming a file from there anyway.