First, you need to understand exactly what an iPod is before you can understand the answer to how do iPods work. An iPod is categorized as a MP3 player, or a portable music device. MP3 files are not saved in analogue form like music on a CD. However, an iPod also plays other types of files such as the ACC, WAV, AIFF, and Apple Lossless formats. An iPod is able to compress files, which is part of the reason that you can store so much onto your iPod. Your iPod can compress files to one tenth the size of the regular file without sacrificing a significant loss in quality for the music.