There seems to be a bit of confusion surrounding the subject of wiping your personal data from your Android device. We all remember that when dealing with an HDD (Hard Drive Disk) on your laptop or desktop, the only way to totally ensure that all of the data on your device is erased is to make sure it is lightly shotgunned. Thankfully, the SSD (Solid State Drive) and software on your Android smart phone are much more friendly to wiping all of your personal data quickly and permanently.
There are two main reasons you might need to make sure that your data doesn't fall into the wrong hands. The most obvious is that you are trying to sell your used hand set to someone who doesn't mind having slightly worn hardware in their pocket. Erasing the data on your phone is no more complicated than navigating to 'Settings' menu, and then selecting 'Storage' (Motorola), 'Privacy'(Honeycomb) or 'Backup and Reset' (Galaxy Nexus). Keep in mind that unless you have backed up your information and setting elsewhere, this cannot be reversed.
The other set of circumstances that might lead you to need to wipe your phone is every gadget geek's worst nightmare... you have lost your phone and you have no way to get it back. Maybe it's in the back of a cab, maybe you dropped it while stepping onto the subway or maybe you lost it in a game of dice in a back alley. Regardless of how your device left your grasp, it's gone, and it's probably not coming back. A recent study by Synaptic showed that even random strangers who pick up your phone are more than willing to get their hands on any personal data you might have left on that device, so it isn't just the criminal element that presents a danger to your identity and privacy.
The key to preventing your personal data from leaking out to undesirables is preparation. First, you should have your phone locked whenever you aren't using it. Yes, it can be a pain to type in a 4 digit number whenever you want to check your email, but it is far better than having your home address and daily habits at the fingertips of a stranger. Also, consider other unlocking options such as 'pattern' or facial recognition. Making sure that it is easy for you to access your device is the key to keeping your future self from taking your security down to nil.
But even if your phone is locked, it is still out of your control and no system is un-hackable, and you still don't want to risk your privacy. Your other option is a remote wipe. There are several reliable options here, such as SeekDroid, Cerberus or AndroidLost. Most of these types of apps also include a remote tracking option, in case you aren't willing to give up on your beloved device without a fight.
Losing your phone is one of those tragedies that we all like to think of as only happening to other people. But once your phone is gone, locked or otherwise, it is gone. A little time spent setting up basic security measures now can prevent a lot of heart break in the future.