Whether you can update the iPod will depend upon which model it is - the second gen iPod Touch only supports up to iOS 4.2.1, and the third gen iOS 5.1.1 (and you can only update to the highest iOS version that it supports e.g. you can only update a 3rd gen iPod to 5.1.1).
With iTunes 11 you may want to re-enable the left-hand sidebar via View > Show Sidebar (option-command-S on a Mac, control-S on a PC), which might make it easier to navigate and my instructions may make more sense.
I assume that the iPod is empty judging by your post's tagline, and that there isn't any content on it that you want to copy off (?).
Connect the iPod to your computer and you should be able to start the update by selecting the iPod on the left-hand sidebar of iTunes, and on the Summary tab on the right-hand side clicking the Check For Updates button