Entire Drive (All data will be erased)

When it says "Entire Drive (All data will be erased)" does it mean only what was added after windows, or does it erase the whole hard drive?

What exactly does it mean by "data?" Does it include the operating system?

It means every single file on the drive. It is only operative on non-system drives, so Windows won't be affected. You can only wipe free space on system drives.