An MP3 CD is a compact disc that contains digital audio in the MP3 file format. Discs are burned in the Yellow Book standard data format (used for CD-ROMs), as opposed to the Red Book standard audio format (used for audio CDs). MP3 files are supported by many newer CD players and DVD players.
You can select the burn option after you click the "burn disc" button.
When you select the MP3 CD burn option, your songs are burned as MP3s. However, they must already be in MP3 format in your iTunes library. You can check in the list view by looking at the "kind" column for "MPEG Audio File". If you don't have a "Kind" column, you can add it using the View Menu -> View Options.
When you select the Audio CD format, iTunes converts the songs so they can be played in any CD player.
You can have about 20 songs on an audio CD but more than 120 songs on an MP3 format CD. However, MP3 format CDs can only play in an MP3 capable CD player or a computer, while an Audio CD can be played in virtually any CD player.