How do you restore OS X Lion back to factory defaults?

I want to do clean up my hard drive a lot, and I'd like to just take the OS back to factory.
First, if anyone knows how to do this properly, please describe how. Second, if I restore back to factory is it possible to redowload my apps and everything from the app store/itunes, or do I have to do something different? I am very unfamiliar with how Mac OS X works, and I could really use some help. Thanks in advance.

homiedontrightclick wrote:
Is there a version of the OS there ready to install, or do I have to have a flash drive with the OS on it?
Booting into the recovery mode (restarting with CMD+R) brings up a minimal OS that allows a few utility functions. However, that suite just queries Apple's servers for the appropriate installer, which it downloads to your machine. Do note that you should try to save a copy of this install app to a separate location, since the ill-designed one deletes itself during installation, necessitating wasting resources (bandwidth, time, and electricity) if you need to recover or restore it.
Once you obtain a copy of this installer, mount the InstallESD disk image and burn it to an empty HD volume or flash drive. That eliminates DLing it in the future and gives you a full and bootable installer.

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