It takes away the cards you don't need. If you have 4 bronze cards of the same unit, it will destroy 1 as you cannot put more than 3 in your deck anyway. If you have more than 1 silver or gold (of the same card) it will destroy the spare one.
As far as crafting goes, i haven't tried it but i i think you craft a card of your choice for a price that is listed in your collection. Look at greyed cards. The price is there