The following link will give you an explanation of what an ID3 tag is. Basically, it is the song file identification on your computer where things like song title, artist, etc. are stored.
http://en.wikipedia.org/wiki/ID3
Now, when it come to the capacity of your Nano, this sounds like you are importing in a Lossless format, high bitrate or both. I need for you to check a couple of things & post back with the information. Open iTunes, right click on a couple of songs, then click "get info", post back with the format & bitrate those songs are in. In iTunes, edit>preferences>advanced>importing tab, the first window should show what the format & bitrate is set to import your CD's into iTunes. One other suggestion when you post, it's very helpful if you will post exactly what your computer & OS is, what version of iTunes you're using, & the exact kind & size of your iPod. If you are having a problem, please include any error messages or error codes, & what exactly you were attempting to do when the problem happened. Happy Holidays!