Q: I am locked out of my iPod Touch.

Place the iOS device in Recovery Mode and then connect to your computer and restore via iTunes. The iPod will be erased.

iOS: Forgot passcode or device disabled

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

To restore from backup see:

Restore your device from an iCloud or iTunes backup - Apple Support

If you restore from iCloud backup the apps will be automatically downloaded. If you restore from iTunes backup the apps and music have to be in the iTunes library since synced media like apps and music are not included in the backup of the iOS device that iTunes makes.

You can redownload most iTunes purchases by:                         

Downloading past purchases from the App Store, iBookstore, and iTunes Store        

If problem what happens or does not happen and when in the instructions? When you successfully get the iPod in recovery mode and connect to computer iTunes should say it found an iPod in recovery mode.