Yes, The erase button does indeed erase the entire CVR recording.
On the older tape loop type of CVR the erase was done by passing AC current though a coil of sufficient strength that the magnetic field produced covered the entire tape loop. Thus "recording" onto the loop and erasing any previous recordings. The AC used was a/c 400Hz and the check that the erase was carried out was to monitor the tape output via headphones and listen for a 400Hz hum. As previously stated the a/c has to be on the ground both engines stopped and the park brake set.
How the erase is done on newer flash memory type CVR's I'm afraid I can't answer.
I imagine erasing the CVR after an incident or accident however would be considered a serious offence