Sorry I can't help with all your questions, but I can offer this.
AAC stands for Advanced Audio Coding and is an alternate (supposedly superior) format to mp3. It is the default format used by iTunes when ripping music from your CD collection. The iTunes Music Store offers all music in the AAC format (some is DRM protected at 128 kbps, some is DRM free at 256 kbps).
I have most of my music in AAC format and have been happy with it. I have even purchased a couple of albums from iTunes - which I never thought I would do.
There are some converters available that will transcode from an AAC file to an MP3 file, but this is generally discouraged as converting from one compressed format to another compressed format takes its toll on audio quality.
Check out
WikiPedia for more.