First, you will not lose any files. Actually, it is a little like the Format utility in Windows, the difference is that it formats only the free space on your hard drive.
Simply speaking, as you use your computer you are adding and deleting files. However, the deleted files are not really deleted, they are marked as "available for use" in the File Allocation Table; this allows other programmes to write fresh data over the old `deleted`data. So, anyone with a little knowledge can recover your "deleted" data.
Wipe Free Space checks your hard drive to find all the free space (some of which will have your "deleted" information) and then it writes random over the top of it. This makes your computer much more secure.
However, the Wipe Free Space included in CCleaner is quite basic, and there are experts who can still recover your data. So programmes, such as Eraser, write over your "deleted" data as much as 35 times making it impossible for anyone to recover--albeit you will hear claims from some who say they know how to do this!
Hope this helps.