Once you commit to the idea that your entire music collection must fit in an Altoids’ box, the next question is how to squeeze it all in? When you start ripping your music, which is the process of converting analog music to zeros and ones, you will have an option on which type and what level of compression you want. Compression is how small you make the file. The smaller it is, the more you can fit. But, the more you compress, the more the sound is affected. Try thinking of it as packing a suitcase. The more you stuff, the more wrinkled it will be when it comes out.
There are two types of compression: lossless and lossy. Lossless recording coverts the music to smaller files that sound exactly like the original. This is good. The downside is that they are still large and you could easily fill a small hard drive with a couple hundred songs. These include: .wav, FLAC and Apple lossless. If you need your music to sound like the CD because you are playing it back on a high-end system, this is the way to go.
Lossy compression have several flavors as well. MP3 is the most popular. There are different bitrates, which is how much compression is used, the lower the number, the more compression applied. Most music from iTunes comes at 128k. Other vendors can use different levels. Many folks may hear a difference and vary the compression.
When you are ripping your music, think about how you want to hear and use your music before you pull the switch.