On the NNS App there is an option to Unlink a Canister, what does that do exactly?

The other options like RENAME, ADD CYLES and ADD CONTROLLER are easier to understand, but not unlink.

Does unlinking delete a canister?

It simply stops the NNS dapp from displaying that canister. Otherwise nothing happens to that canister. You can always relink it later

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Thanks, quite a unique feature indeed.