An iPod is an MP3 player, just made by Apple. Also plays AAC format tunes from the Apple iTunes store.
What's cool about iPods and MP3 players in general is that you can load all your CDs and dispense with carrying a bunch of them with you when you travel. The iPod in particular is the most popular MP3 player, and has spawned a huge aftermarket for accessories. I got a FM transmitter from DLO that lets me play it in my car. I also got a docking station from Kensington that lets me play it back through my stereo. Some folks like to listen when they exercise or ride bikes, too, though not me.
Lots of people enjoy the random play option. It's also replacing CDs or Muzak in a lot of businesses. In Seaside, Bud and Alleys and Central Square records are playing music from iTunes (the PC software for the iPod).
I got a 4GB iPod mini (now discontinued) for long drives (with the FM transmitter) and for airline travel. I've got about 50 CDs on it and a bunch of singles. Probably 800-900 tunes in total. The bigger iPods hold as much a 10X that.