Someone uploaded content to itunes they did not own

Indeed they do. Podcasters are not allowed to violate other people's copyright, and any podcast spotted doing this will be removed. However there are thousands of podcasts and Apple can't keep monitoring them all.

You can report it by clicking the 'Report a concern' link in the links section on the left of the podcast's Store page.

I don't think there is an actual Terms and Conditions page. The nearest would be this page:

http://www.apple.com/itunes/podcasts/specs.html

It does mention copyright violation as a reason for removal. There are any number of podcasts with 'mixes' using commercially available recordings without clearance: this is obviously a violation of copyright and as I said if spotted will get the podcast removed. Also anyone doing this lays themselvs open to legal action from the copyright owners (there was a post some time back from a podcast creator who was being sued for $25,000 for using material without permission, though I never heard the outcome).