how do you reset a ipod touch?

From the manual:

Reset iPod touch: Hold down the On/Off button and the Home button at the same time for at

least ten seconds, until the Apple logo appears.

You can also just hold the on/off button down until a red bar appears. It says "power off" and you slide it to reset.

Actually, resetting restores the data on the iPod and returns it to its factory state. What you described was simply powering off and powering back on again.