iPod Shuffle Does Not Support Apple LossLess?

it's by design. because Apple lossless files are s huge, they are being converted to a lossy format (AAC) on the fly.

that way you get more tunes on your iPod.

but can i set it to 192 or 256 bps instead of 128 bps?

You can convert the files to 192/256 if you want but the option for iTunes to convert automatically is only 128 and cannot be changed.

iTunes prefs General. Click the Import setting button.
Set it to AAC (or whatever you want).
Select the songs you want to convert then right click *Create AAC version*.
This will create a new copy in the new format. The old version will still be in your library.

is it possible for me to convert my entire itunes library(currently in apple lossless format) to a new 192kbps

See above.

how do i manage the folders for the new 192kbps songs?

Folders?
You can create a new playlist folder and add the songs to playlists and put these playlists in this folder.
Create a new smart playlist.
Match all rules:
Kind is AAC
Bit Rate is 192.

so what's the difference between a play list and a smart play list?

A playlist you need to add songs to it yourself by dragging songs to it.
A smart playlist selects songs based on the criteria you set. You cannot drag songs to a smart playlist.

do i create a play list for each of the albums?

No.

i have 4000+ songs, can i just add 1 play list and convert all of them to 192kbps?

Yes.
File -> New smart playlist.
Match All rules:
Kind is AAC
Bit Rate is 192 {or whatever you select in iTunes prefs -> Import settings}

Songs will be added to this playlist automatically after they get converted.

so which folders are these newly converted songs in?

What do you mean?
They are in the ne wsmart playlist. The songs files themselves are in Artist/Album folder but why do you care?
You access them through iTunes.

i need to find them in order to delete them.

As always wih iTunes, don't delete files in the Finder else you will have a bunch of songs in iTunes with the exclamation mark.

so i need a quick way to seperate the apple lossless and 192kbps songs

I showed you a quick way to separate them by creating a smart playlist.
Select this smart playlist, select all the songs in this playlist then *Option Delete*. It will remove the songs from iTunes and also remove them from the HD.