Summarize the following:
This will create a back up that will be used to restore once the reset process is complete. Your iPod will begin the restore process. After the reset process is finished, you'll be able to start the iPod setup process. This will display your available iTunes backups. Tap the backup that you want to restore from. Restoring a backup may take 10 minutes or so to complete. When you restore from iTunes, your content will automatically resync so that you don't have to worry about transferring everything again. The time this takes will vary depending on how much you're transferring.

Summary:
Connect your iPod Touch to your computer. Start iTunes. Click the button for your iPod. Click the "Restore iPod" button. Click "Check " if prompted. Click "Back Up" if you intend to restore after resetting. Click "Restore" to confirm. Set up your iPod. Tap "Restore from iTunes" if you created a backup. Wait while your content syncs.