What does it actually mean to say the website is stateless?

I am having trouble resolving an important query!
I understand that Azure websites are stateless in the sense of session state for a web application.  
However, what I am getting contradictory messages about is as to whether if a website VM is reset, you would lose any changes to a website (i.e. it would revert to the original version).
This would seem rather peculiar, I would understand reversion to the last deployed version before a problem.
So the questions are:
1.  To what point in time is a website restored to if a VM fails (assuming we just have a single instance ?)
2.  If the VM does get reset, do you lose the contents of the data, LogFiles and any custom directories in the site folders and  underneath the wwwroot directory you see when logging in with FTP? 
I have just thought of a related question if you had multiple instances, would these custom directories and their contents replicate between instances? (i.e. would they sync to the latest version?)
The background is that the current site that is being moved from an ISP, will upload user files for temporary storage until the customer downloads them.  Obviously a long term aim is to get these into BLOB storage.
mmacneill123 (MCP)

Thanks David
I am 99% certain that answers by question, I do not see a D:\home but I assume the website is on d by default and the home directory just \ in an FTP client?
Thanks :-)
mmacneill123 (MCP)

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