How to delete everything on an iPod Touch?
Fully charge the iPod Touch
Go to the Settings menu. Scroll down until you see the "General" settings, and hit that, then scan to the very bottom, where you'll see a mini-menu titled "Reset." Press this. This will bring up a few different options, but the one you want is "Erase All Content and Settings." (Settings / General / Reset / Erase all )


you can see full detailed here.

Also you can use itunes, and go to the restore feature. This will take your ipod back to factory default.