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You will lose all apps, app data, but not contacts (if they're backed up with your GOOGLE account).
The whole process takes probably half an hour. Its all quite neat, just a few button presses and you have a completely new ROM
Sent from my ApeX-ed, Overclocked, and Automated DROID 2
You don't lose anything by rooting. Rooting is similar to having Admin privileges (vs Guest) on a Windows PC.
If you install a new ROM, you will basically perform a Factory Reset and everything will be like you just got your phone. However, your contacts and most/all of your apps will automatically re-download from the market if you have sync enabled on your phone. Before you install a new ROM, you should just install something like Titanium Backup and make a backup of your installed apps. If you do this you won't even lose your data inside most apps (your Angry Birds progress will be safe!).