databases/*files are the "memory" of web2py to know which tables have been created in the backend and which have not... If you delete it, web2py think the related table is not defined in the backend and will try to create it, which will lead to the error message you have as the table is already created in your sqlite database...
To fix that you have to migrate=false and fake_migrate=True then set back migrate=True between these change you have to make a page reload (any page) of you app... It will force web2py to reanalyse and sync web2py with the backend.
Note: In production, you should set migrate to false....
Richard