*note that where I mention 'MP3s' here, you can also read 'WMAs' or indeed any other compressed format, to a greater or lesser extent*
Very roughly, the difference between the WAV and MP formats is:
MP3s are designed to be more portable than WAV files: they're obviously much smaller which makes it easier to transfer them, either via your internet connection or onto storage media.
Therefore, it's quicker to upload or download them, and you can fit many more of them onto your iPod.
However, with that convenience comes a big 'BUT'...
The MP3 format relies on encoding the audio into a packed form (a little like JPEG compression) at a particular bitrate (ignoring MP3 VBR format for the moment). For example, you can encode MP3 at 64, 96, 128, and 256KBps. The lower the bitrate, the less space the file takes up and the quicker it is to transfer. But the lower the bitrate, the less audio quality you get in the finished file. 64KBps is just about 'telephone' quality, and is the sort of thing you only really want to use for spoken word files. 128KBps is good for music on portable players (it's roughly FM radio standard, I think), but won't really stand up when compared to a CD on a good stereo system without being given a lot of signal processing. 256KBps is well on the way to CD quality (my middle-aged ears have trouble telling the difference!) - but each of these formats DOES lose some audio quality compared to the original recording.
WAV format can be thought of simply as 'what was on the original media'. There's no compression, and no losses. If you REALLY have to have the very highest fidelity, then that's the format to go for. Which is why so many people on here have *quite* so much storage for their music files! And probably such large bills from their ISPs, too
A compromise would be something like FLAC (Free Lossless Audio Codec) format. These are a little smaller than WAV files, with no losses. But there aren't all that many players that will reproduce FLAC files.
Don't know if anyone wants to add anything to that...?
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