Just to expand on what Doug said ...
When you rip the CDs, just use a good quality setting. If you do it with 256kbps, unless you have golden ears, you won't be able to tell the difference. If you have enough space, you can even use a lossless compression format. itunes supports one. If you do it using a lossless format, you can always make smaller files from the lossless files later. This is pretty much what I did, only I used a different format (flac), but that was before itunes supported an AAC lossless format. Any of them will work, but for ease of use in itunes, it makes sense to use their lossless format.
lossless just means that the data will be identical to the original. Most compression formats are able to make the files smaller because they are lossy formats. lossy means that the uncompressed file will not be identical to the original, but it's really ok, because if you use a high enough bit rate, most people can't tell the difference and/or don't have the type of audio equipment where it would matter.
In itunes, the settings are in preferences, general, import settings.
To downconvert files in your itunes libraray, select them and right click on the file, and select "create AAC version". You can also set up itunes to automatically downconvert files for certain devices.
-David