Why can't I sync more photos to my ipod touch?
As you have figured out, you need to select fewer folders/photos in order to keep it from failing. Simply compare the size of the folder(s) you want to sync with the space available on your iPod.

On a Mac, you can select a folder and press command+i (or control+click and select Get Info) to display the size of a folder.

On Windows, you can right click and select Properties to display the size of the folder.