If your unsure if to factory reset, don't.
Before following the guide it is sometime a good idea to start with a clean system to help avoid any issues, to possibly free up space, remove the PSN account and to possibly make the mod process cleaner. but if your running software lower than 3.65 then try to update first to see if theres a block in place. (removing the update block)
If you only format the memory card, this will retain the PSN login information and any previously installed plugins and various other system files. All you will loose is any installed apps and games.
If you fully factory restore then this will wipe ALL information from the system including PSN details and anything stored on the Sony memory card
if you perform a restore with the Sony memory card removed you will still be asked to format the card when you reinsert it and loose all your data on that card.
A fresh format or system restore is totally optional as you may have save game data, music, videos, images or purchased games that you didnt want to loose.
The only way to remove the current PSN account on your system 'before' modding is with a system restore, otherwise you can actually remove the account easily 'after' the mod process by using an app called 'Simple Account Switcher'
If you have issues with the mod process starting (i.e. the website doesnt run or crashes the system often) then it may be a good idea to update to the latest firmware first which is currently 3.74