There are two different types of resets for your Windows Phone. Soft reset and hard reset (a.k.a. factory reset). There is a big difference between the two: The hard reset will return your phone to factory settings while the soft reset is more like an extended reboot.

Soft Reset

The soft reset is the same thing as pulling your battery (on devices where that is possible). This method will not remove anything at all from your phone and is completely safe to attempt in any problem situation.
You perform the soft reset by having your phone turned on. Then press and hold thevolume down and Powerbuttons until your phone vibrates and restarts. Note that you should not touch the device screen during the process (not even when the 'slide down to power off' prompt appears).
Example of situations where the soft reset should solve the problem:->.An app that usually starts won't start
->.The camera won't open
->.The device starts using too much battery
->.The device starts behaving oddly

Hard Reset

The hard reset will bring your phone back to factory settings, the same state as when the device was first turned on. All apps, messages, media, personal settings, etc will be removed from the phone. If backup is turned on under Settings, you can restore your apps and settings after performing a hard reset (as long as you initialize the phone with the same Microsoft Account).
Note that resetting your device will not remove any OS or firmware updates. You will remain on the same version of Windows Phone after the reset.
If you can turn on your device you can reset your phone under Settings:Settings > about > reset your phone

This procedure is described in more detailed in this official how-to article.
If your phone is unresponsive and you can't reach Settings, you may be able to reset your phone using the hardware buttons:
I.
Press and hold the volume down and Powerbuttons at the same time until you feel a vibration (about 10–15 seconds).
Ii.
When you feel the vibration, release the buttons, and then immediately press and hold thevolume downbutton until you see a large exclamation mark.
Iii.
Once the exclamation mark appears, press the following four buttons in this order:volume up,volume down,Power,volume down. Your phone should now reset and restart itself. (It might take a while for the reset to finish.)
The hard reset operation will take a while to complete and will show spinning gears before it reboots your device to factory settings. Usually it will finish within 30 minutes but can, in some rare cases, take up to a couple of hours. Some older Nokia Lumia handsets have a bug where a reset never seems to finish. If that should happen to you, check this wiki articlefor a solution.

Example of situations where the hard reset should be used:
->.The soft reset didn't solve the problem
->.You want to switch to another Microsoft Account
->.You want to reset a device that you will no longer use (this enables someone else to initialize the device with their own Microsoft Account)
->.You want to restore a backup

Source: Microsoft | Credit: Netizenstech Officials