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PRAM or parameter RAM is a small amount of battery-fed memory, similar to a CMOS on a PC. It stores some details that your system needs quickliy at startup.

If you want to clear it you could pull the lithium battery associated with the memory or you can do the cmd-opt-p-r. Pulling the battery and hitting the CUDA (Capacitor Unit Discharge ASIC) switch will reset your NVRAM, an even lower-level memory that open firmware uses.

As to what it clears, a google search will help you with more details.
 
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