Found this in a Sony Xperia manual:
Safe Mode temporarily disables all applications that have been installed via the Android Market. Performing this troubleshooting step is necessary to determine whether a 3rd party application is the cause of an Operating System / Application issue. Safe Mode should always be performed prior to a hard (factory) reset.
The safe mode is there to provide repair in case one of the applications causes the phone to behave strangely or misbehave.
The phone has to be rebooted into safe mode, which can be done by pressing the power button and holding one of the keys.
The second key in some phones:
- volume down/up button - menu button - home button - back button - other type of button
When you enter safe mode there is a label "Safe Mode" at the bottom of the screen (left or right corner).
In some phones the debugging menu has more options in safe mode, all related to application management.