Reincarnation involves the person's memories and past identity being erased, but the soul itself is sent to live inside another being.
The second option is the soul being sent to the Void, a dark place devoid of any content.
While one might make parallels between the reincarnation/void and heaven/hell, it is mentioned that they are not the same. Arbiters often explain it this way so humans can understand quicker. Void shouldn't be treated as a bad thing - it is simply a place for souls that don't benefit from reincarnation.