Best Audio Format for Apple I-Pod

AAC is a general codec like MP3. It can compress the file size as much or as little as you like. At 320kbps, you are compressing at 4.4:1. At 256kbps, it's 5.5:1. At 128kbps, it's 11:1. It's your choice, if you're the one doing the encoding (e.g., if you're ripping from CDs with iTunes). If you download from the iTunes Music Store, you're getting 128kbps.

There will be a clear difference between CD and 128kbps AAC. You'd be hard-pressed to tell CD and 256kbps apart without knowing which was which unless you know exactly what to listen for.

As for Apple Lossless, Apple claims 2:1 compression, but the tests I've seen suggest that, on average, you don't get quite that much. A typical Apple Lossless file will be somewhat more than half the size of the original WAV or AIFF file.

Rsbeck: The same way data compression works with other computer files: zip, stuffit, whatever. You can compress a file on your computer, de-compress it, and get back the exact file, bit for bit. Apple Lossless works the same way.

That's distinct from "lossy" compression, like AAC and MP3, which aren't reversible. What you take out, you can't put back in. But if you start by taking out the things people can't hear anyway, and then move to the things that are very hard to hear or not very noticeable, the effect is relatively benign.