I was just doing some reading to determine the best digital formats to use going forward. Wiki has a good article that defines all the different lossless and lossy formats. Of course, there will always be a compromise between quality and file size. So I then did a quick test on each 'major' file type by doing some conversions in iTunes. The following are some comparative results, based on a song of 4:15 duration as reference:
AIFF @ 1411 kbps (44.1 khz / 16 bit CD quality): full quality, no compression. Size 45.3 MB.
WAV: full quality, no compression. I assume it would render a similar size as AIFF above. If you use Windows, WAV might be a better format choice than AIFF, which tends to be more common on Mac.
MP4 (Apple Lossless): full quality, compressed. Size: 29.5 MB It's too bad Apple does not use this as their default format when buying music from iTunes. (see below)
AAC @ 256 kbps: medium-high quality, lossy. Size: 8.1 MB Note: This is the default format for iTunes Store downloads. It is 'okay' quality, not perfect, but makes for a faster download than, say, an MP4 would. At least they no longer use 128 kbps!
MP3 @ 192 kbps: medium-high quality, lossy. Size: 6.3 MB Note: iTunes does not offer conversion higher than 192 kbps. Even at similar bit rates, Wiki article says 'AAC generally achieves better sound quality than MP3 at similar bit rates'
AAC @ 160 kbps: medium-low quality, lossy. Size: 5.2 MB
MP3 @ 160 kbps: medium-low quality, lossy. Size: 5.0 MB
CONCLUSIONS:
First, it would seem that MP4 (Apple Lossless) would be a good choice for full quality archiving when ripping CDs into your computer; however, though the file size is about 65% of what an AIFF or WAV file is, it is still quite a large file.
Second, I agree with Chris that if you want to save 70% more space than MP4 (80% more than AIFF), and are willing to give up a bit of sound quality, then AAC @ 256 kbps is a good choice. Even if you reduce to 160 kbps, AAC will still be better quality than MP3. I currently use MP3 @ 160 on my iPhone to play in my car, which seems tolerable, but I may rethink this and go with AAC @ 256, given the files are only a few MB bigger. By the way, no matter what, avoid resolution less than 160 kbps, as you will definitely notice the harsh sound quality, even on a lower end car stereo.
Finally, the only question that nags me is how sure can we be of which formats will still be around and readable by all equipment (computer, phone, tablet, car stereo) in 10 or 20 years from now? Will AIFF, WAV, MP4, or AAC still be common? Who knows. The wonderful thing about digital is its 'virtual' convenience. The downsides are how fast formats change, and how most storage mediums are not truly permanent (hard drives and even CD-R or DVD-R will eventually fail, so remember to re-backup every so often). It would really suck to have to convert your entire mega-collection of digital music into some other format in future, yes?
I hope some of this helps.