AAC and iTunes

The newest digital audio format is called Advanced Audio Coding or AAC. This format is part of the larger MPEG-4 specification. Its basic purpose is the same as the MP3 format: to deliver excellent sound quality while keeping file sizes small. However, the AAC format is a newer and better format in that it can be used to produce files that have better quality than MP3 at even smaller file sizes. Also, as with MP3, you can easily convert audio CD files into the AAC format to store them on a computer and add them to an iPod. What’s more, you can convert AAC files into the Audio CD or MP3 format when you want to put them on a CD to play on something other than your computer, such as a car stereo.
The AAC format also enables content producers to add some copy-protection schemes to their music.
Typically, these schemes won’t have any impact on you (unless of course, you are trying to do something you shouldn’t).
One of the most important aspects of the AAC format is that all the music in the iTunes Music Store is stored in it; when you purchase music from the store, it is added to your computer in this format.