Converting videos in iTunes to play on iPod 5G

I searched some answers about converting videos to play on my ipod touch 5G. I used Any Video Converter and it reduced my video to play on my iPod, but it seemed to distort the video. I used the highest resolution. I downloaded HandBrake, but I need to read the manual for it does not seem as easy as AVC.

I could swear in the past I was able to play my large video within iTunes and convert in into a smaller video, but I no longer see that option in any menus.

Am I missing something?

Any hints?