Some things do, but your progression does not. The ambient events that go on around the town along with the events that have occured with other characters of the game are completely reset. This means you can win the lottery over and over again! If you complete a temple or collect a mask and go back in time everything will be saved.
You do NOT have to complete the entire game in a single 3 day burst. You can do a little bit at a time and eventually you will have everything complete. You can use the bank to store your money and through some magic when you go back in time your money will still be there.
Just be careful not to half finish any quests. If you progress through a quest, but dont complete it to get the reward EVERYTHING will be reset when you go back to do the quest again. So you must collect your reward before the 3 days are up.