You rip the CDs onto a computer. There are some choices, but just use iTunes, which is free and runs on both Windows and Mac. Within iTunes, you have choices of how to compress (or not) your music. Apple Lossless is excellent. Synch to the iPod. (All of this is incredibly simple, you will see.) Getting a set of Shure or Etymotic earpieces is a substantial upgrade, but honestly, your sister will probably be very pleased with the earbuds that come with the iPod.
As for choice of model, get her the one she will like best (size, color, price). All except the Shuffle will hold all of her CDs.
As for choice of model, get her the one she will like best (size, color, price). All except the Shuffle will hold all of her CDs.