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"Keep Device Database" means throw away what's on the server and push this up there.
"Keep Sync Database" means (as you described) throwing away your local data and pulling down the server data.

I would expect this to happen if you haven't been using OmniFocus for the iPad in the last two weeks. Rather than hold a ton of history in case the iPad ever tries to sync up again, the other clients just assume the iPad is gone, so they can clean up history and sync faster. By syncing all your clients more frequently, it gives them a chance to tell each other "I'm still here!" so they'll keep enough history for each other to get back in sync.

But if you've been syncing all your devices weekly or more, this may be a sign of a larger worry. Let me know (or email if that seems to be the case.