Better to Over-estimate than Under-estimate:
Yes, at the end of the plan year you lose the amount of money left in your account if it is not spent. But remember that unless that amount exceeds the amount of tax you would have paid on that income, you are still better off. A quick example may help illustrate: Assume you are in the 25% tax bracket and estimate eligible healthcare expenses of $1,000 for the plan year. Your income tax savings by contributing to an FSA is $250 ($1,000 * 25%). If you only spend $800 of your $1,000 in the FSA during the year, you still save $50 ($800 - $750). By spending the entire $1,000, you end up saving the entire $250.
A quick Google search can retrieve several lists of eligible and non-eligible healthcare expenses. In general, you can plan on including any over-the-counter (OTC) medications, doctor visits copays, prescriptions, or other essential medical expenses. You can find a rather specific list here.