If you are planning on selling your iPod Touch, it is very important to securely remove all data from it. This will ensure no personal and sensitive information is left on the device. Follow the instructions below to securely wipe your device and reset it back to factory default settings.
1) Plug in the iPod Touch so that it remains charged during the entire process.
2) Open the “Settings” app on the phone.
3) Navigate to the “General” section.
4) At the very bottom there will be a “Reset” option, open this.
5) Hit the option titled “Erase all Content and Settings”.
6) When the warning pops up reconfirm “Erase iPod”. You will have to reconfirm twice.
The previous instructions may differ slightly between different versions of iOS. By resetting the iPod Touch this way, it securely erases all data by over-writing everything. The entire process could take several hours depending on how much data you have on the iPod, so make sure you keep it plugged in.
This video (not created by me) will guide you through the same process as I listed above.