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Archive and Install
The Archive and Install option is only available in Mac OS X 10.2 and later. If you want a fresh installation of Mac OS X on your computer, then choose this option. When this option is selected, all the existing system files are first moved to a folder named “Previous System" and then the installation of Mac OS X starts. The Archive and Install option also lets you choose whether to preserve some of the existing data on the computer or not. You can select Preserve Users and Network Settings if you wish to import the existing Web browser favorites, Address Book Contacts, iTune songs, iPhoto photos, files on the Desktop and in the Documentation folder, Shared folders and the network information to the new Mac OS X installation.
Note that the Archive and Install option will not be available if your Mac already has OS X installed.
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Erase and Install
If your Mac already has Mac OS X installed, you might want to install a fresh copy of it. The Erase and Install option removes all the content on your Mac before installing a new copy. This is the quickest install method because it erases all the previous data and settings instead of moving them to another location. The option consumes minimum amount of storage space.
The Erase and Install option is good for you if your Mac OS X has an issue and you already have tried Archive and Install but it did not help. This is also good if the existing information on your computer is no longer needed.
If you opt for Erase And Install, you can also choose one of these volume format types:
1- UNIX File System
2- Mac OS Extended (Default)
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Upgrade to Mac OS X
Upgrading is another option that is available only if a previous version of Mac OS X exists. Upgrading simply tweaks and upgrades the current operating system (including Mail, iCal, Address Book, etc) to the new version. The upgrade process takes a bit more time than installing on a disk without Mac; however it is the safest way to install because most of the existing applications and settings remain untouched during the upgrade process. If you are installing Mac OS X 10.4/10.5 on a disk that already has the same version installed, the Upgrade to Mac OS X option will appear as the first choice.
Note that if you are having issues with the existing installation, upgrading might not resolve those problems. In that case, the Archive and Install option might benefit you.