MP3 is just a compression file format. In a nutshell, unrecognizeably the program removes bits of music information in order to make a song shorter. That's why you can burn 30+ songs on a single mp3 encoded disc from your computer.
IPOD is ht the name of a compression music storage/player. There are others, but IPOD is by Apple. There are Creative labs and Hewlett Packard models of player/storage units as well as many others. IPOD is just the most recognizeable.
Other formats will play on the Aple as well. WMA, MP3, AAA, etc...
You download all of your cd's into your computer's hard drive. You can set a default to automatically ut them into the Itunes program. Since I use computer to play throughout my house, I download them to "my music" then transfer a copy to itunes.
Once you have all of your discs downloaded, you creat playlists with the program, hookup your ipod via the usb cable provided. The IPOD will appear in itunes. From there all you do is drag and click your playlist into the IPOD line... click disconnect, disconnect the unit from your computer, and you're all set to play via earphones or via sometype of carkit or hardwire system in your vehicle.
You will have to get an adaptor for your headunit, but that's all you'll need.
The reason models get more expensive is due to storage. Costco has the IPOD Video 30GB for 289.00...I'm on my way to buy one now That will hold the 8000 songs and pictures I have on my computer! Hell, my last computer was had only a 20gig hard drive!
Hope this helps...
<---- on my way to get the new ipod