Restoring your iPod to factory settings will result in all of the data on your iPod being erased and restores all preferences or hacks back to the iPods 'out of the box settings'. This is handy if you want to sell or give your iPod away. It is also convenient if you want to start from scratch and erase everything you previously listened to as opposed to removing each song or picture though iTunes manually. Restoring your iPod is also an option when the device starts to act funny. If you've reset your iPod and it is still acting up, (freezing all the time), you may want to consider performing a restore.
Before you restore your iPod to factory settings, make sure you are 100% sure you want to erase everything as you will not be able to recover this data later!
How to do it
Plug your iPod into whatever computer you want to be the 'primary computer' for this iPod. I would suggest making sure you do this on whatever computer you will be transferring most of your music from.
Next open iTunes and click on the 'Restore' button and allow iTunes to do its thing.
You now have yourself an iPod with a clean slate. No music, no videos, no pictures and the same settings it comes with out of the box. You can now give away your Apple iPod without having to worry that somebody will be able to see your old files.
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