Erase all content and settings from iPod touch
When you delete data, it’s no longer accessible through the iPod touch interface, but it isn’t erased from iPod touch storage. To remove all of your content and settings from storage, erase iPod touch. For example, erase iPod touch before you sell it or give it away. If you want to save your content and settings, back up iPod touch before erasing it.
When iPod touch restarts with all content and settings erased, you have the option to set up iPod touch as new or restore it from a backup. (See Turn on and set up iPod touch.)