A hard reset (or factory reset) will basically wipe your phone back to how it was when you first received it (i.e., no saved data, settings, applications, etc.). Doesn't touch the contents of your /sdcard.
Rooting is changing the operating system to give you extra functionality that does not come standard on the phone. Things like overclocking (making your phone run a little faster), wi-fi tethering (make your phone into a wi-fi hotspot), allowing you to install other, root-only applications that need special, system privileges, plus more. Here's an link that explains it in more depth:
Root is the linux word for administrator. Rooting a phone is simply getting access to admin privileges. Once you have those, you can do things like use custom roms, tether etc.
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