oops, I thought you were asking how to update Apps. Use AnaMusic's post to update your iPod Touch.
Open App Store on your iPod touch. select the Updates icon [bottom right]. If any of your apps need an update they will be listed. Update each or Update All [top right]. It will ask for your Apple ID password. Enter it and the update(s) will be done.
It appears that you have 1G iPod. That can only go to iOS 3.1.3. If you need a device with a higher iOS you need to purchase a newer iPod,. Note that a 2G can only go to iOS 4.2.1