Change Import Settings for Better Audio Quality
The iPod can play several different digital audio formats: AAC, MP3, WAV, AIFF, and a newer format called Apple Lossless. Feel free to safely ignore that last sentence, as well as the rest of this page, if you're happy with the way your music sounds on the iPod or a pair of external speakers.
If you find the audio quality lacking, you need to change the way iTunes encodes, or converts, those tracks during the CD conversion process. iTunes gives you two main options in its import settings box (Edit [iTunes]→Preferences→General. Click the Import Settings button to get there):

Format (pull-down menu: "Import Using"). Some formats tightly compress audio data to save space. The tradeoff: lost sound quality. Highly compressed formats include AAC (iTunes' default setting) and MP3. Formats that use little or no compression include WAV and AIFF, which sound better, but take up more space. Apple Lossless splits the difference: Better sound quality than AAC and MP3, but not as hefty as WAV or AIFF.
Bit rate ("Setting"). The higher the number of bits listed, the greater the amount of data contained in the file (in other words, your files take up more storage space). The advantage? Better sound quality.
To see a song's format and other technical information, click its title in iTunes, press Ctrl+I (⌘-I), and then click the Summary tab in the Get Info ...