OFF uses iTunes EQ settings, if any.
FLAT overrides iTunes EQ settings, if any
Close.
In Flat, if a song has a preset EQ set in iTunes, it
will use that preset, otherwise it does not use any
EQ.
In Off, the EQ is not used at all.
Page 28 of the very fine manual for 2n Gen nano:
Using the Equalizer
You can use equalizer presets to change the sound on iPod nano to suit a particular music genre or style. For example, to make rock music sound better, set the equalizer to Rock. To use the equalizer to change the sound on iPod nano:
Choose Settings > EQ and choose an equalizer preset.
If you assigned an equalizer preset to a song in iTunes and the iPod nano equalizer is set to Off, the song plays using the iTunes setting. See iTunes Help for more information.
Hmmmm...? There's nano's EQ and iTunes' EQ...