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Volunteer types are used to let you subdivide your volunteers into different classes. "Day of", "Long term" and "Court mandated" are common volunteer types. You can filter, sort and report on people based on this value, and this field can be used for non-volunteers if that's appropriate for your organization.
Someone who is not a volunteer is still allowed to have a volunteer type.
Deleting a volunteer type removes that volunteer type from all people who currently have it.