MP3, AAC, and WAV are audio file formats. The compression methods used to create MP3 and AAC files are termed lossy because the encoder removes information from the original sound file to create these smaller files. Fortunately, these encoders are designed to remove the information you're least likely to miss—audio frequencies that you can't hear easily, for example.

WAV files are uncompressed, containing all the data from the original. Original CD's are in  WAV format.

iTunes supports another compression format worth noting: Apple Lossless. This is termed a lossless encoder because the encoder doesn't shrink the file by removing portions of the audio spectrum; rather, it removes redundant data. This scheme allows you to retain all the audio quality of the original file while producing a copy just over half the size of that original file. However this means the average song is about 20GB of filespace, compared to 3 or 4 GB in AAC format. AAC sounds nearly as good as Apple Lossless, and makes more sense if you want to put a lot of tracks on your iPod, as most of us do.

The default settings for MP3 importing include Good Quality (128 Kbps), High Quality (160 Kbps), and Higher Quality (192 Kbps). If you don't care to use one of these settings, choose Custom from this same pop-up menu. In the MP3 Encoder dialog box that appears, you have the option to choose a bit rate ranging from 8 to 320 Kbps.

By the way, don't bother trying to convert an old MP3 file into AAC. If the music has already been compressed, data has been lost. Start again from the genuine original CD's and re-record them all to your iTunes.