Forgot my passcode to my I pod Touch 5, I want to restore it to factory settings so I can give it to my Grandaughter.
Place the iOS device in Recovery Mode and then connect to your computer and restore to factory settings/new iPod (not from backup) via iTunes. The iPod will be erased.
iOS: Wrong passcode results in red disabled screen
If recovery mode does not work try DFU mode.
How to put iPod touch / iPhone into DFU mode « Karthik's scribblings
For how to restore:
iTunes: Restoring iOS software
Retrieving data ...