120 songs is just an estimate from Apple based on all songs being 128kbps AAC files, of about 4 minutes each.
In reality, your 512mb iPod will hold about 512mb of content. That's the only limit.
For example, even if your songs are all 4 minutes each at 128kbps... maybe they are in MP3 format.
MP3 files are slightly larger in size than AAC files, so you'll fit less of them on the iPod because they use more space.