There is an app you can download that explains it. I'll do my best to explain it from memory.
Go to your itunes, select 30 seconds or less of a song you want to be your ring tone
right click
create AAC version
right click on that and select show in windows explorer
right click the file, properties and convert it from a .m4a file to an .mr4 file.
pull this into your itunes and sync your ipod
if it does not come up in the ringtone section (on the phone)
restart it and it should be there, if not youve done something wrong
but there is a free app u can download that tells u how