Yes. You lose everything stored on the phone storage. A factory reset makes the phone look like it just came out of the box again.
I recommend transferring them over to the SIM card, SD card, emailing the .vcf file (a list of your contacts, basically) to yourself, or backing them up with your Google account before you do the reset.
Hey Jacques, as long as you have added a gmail account to your LG Optimus One, your contacts will be backed up when you have entered them into the phone. After you do the factory reset, you can enter in the gmail account again and your contacts will be loaded into the phone.
If you see a good answer, give it a star.