Yes, Apple chose their AAC format as the default when you install iTunes.
As to which is better, it is hard to say. They have their pros and cons. Assuming we are talking about MP3 vs. AAC, Apple claims that AAC is better is than you can get better quality sound with less bits. Apple claims that a 128 kbps AAC file sounds as good as, or maybe better, than a 160 kbps MP3 file. So there are two ways to look at that. One is that for the same bit rate (e.g. a 128 kbps AAC vs. a 128 kbps MP3) the AAC files will sound better. Or two, you can get the same quality sound out of a AAC file in less bit than a MP3 so you use less drive space for the same quality (e.g. using 128 AAC files instead of 160 MP3 files).
However the downside is that AAC files are not as universally playable as MP3 files. For example you can now find car stereos, set top DVD players, CD players, etc. that will all play MP3 discs. I am not aware of many (any?) that will play AAC files. So to make a CD for your cars MP3 player, you would have to first convert your files from AAC to MP3 before making the CD. Or if you use a Non-Apple MP3 player, same deal.
I stick to MP3 format for this reason since my daughter (used to) use a portable CD player that read MP3 CDs and my wife's Alpine CD charger in her car also reads MP3 CDs. I can also simply email my files to people or bring them to work and play them on my work computer and won't have any trouble playing them since they are MP3 files that are widely supported.
But that is just my own preference. Some people are very happy with AAC files and other go with the lossless formats (and accept the MUCH higher storage needs of those types of files).
Patrick