Of the various options iTunes gives, AAC and MP3 are compressed formats so you lose some quality but gain space. AIFF (CD) and WAV are uncompressed so you gain quality at the expense of space. Apple Lossless falls somewhere in between, doesn't compress as much as AAC and MP3 so you gain some space but not as much, however it is claimed to give a quality which is the equal to CD. Of the compressed formats AAC is less widely used at present, if you have a non Apple music player or a newer in-car CD player then MP3 would be the most compatible compressed format and AIFF the most compatible uncompressed one:
Make copies of something you are familiar with in the various formats and have a listen for yourself. People will have different preferences so it's always best to go by your ears. You could also have a look at these articles for some reference material:
Planet of Sound - Quality of AAC audio and MP3
iTunes Encoding Strategies
iTunes: About import settings and hard disk space
