If you choose lossy formats (MP3 or AAC) the minimum bitrate setting you should use for music is 160 kbps, though 256 kbps is probably to be preferred - and in use on an iPod is unlikely to be distinguishable from WAV or AIFF (or Apple Lossless). The two main benefits are that you can fit many more songs into the device (for 256 kbps files you can fit about 10 times as many songs) and compressed files improve battery life, because disk reads are relatively heavy on battery power. There are several advantages to using a compressed format on iPods and iPhones.
If you have plenty of storage space on your device or a relatively small music library you may wish to consider the larger lossless WAV or AIFF formats. MP3 should be considered if you think that in the future you may wish to switch to an alternative portable music player or phone. AAC is the default format set in Apple Music/iTunes and the format Apple uses for audio files sold from the Apple Music/iTunes Store, so is the most obvious choice if you solely use Apple products.
