If you enter the wrong passcode repeatedly on an iPod Touch, it will display a message that says "iPod is disabled." At first, the iPod will only be disabled for a minute, but if you continue to enter the wrong passcode, it will become disabled for longer periods of time, and finally, you will need to connect it to the computer with which you last synced it. From here, you will need to restore the iPod Touch to factory settings.
Open iTunes. Click "iTunes" in the upper-left corner, then select "Check for Updates" to ensure you have the latest version.
Connect your iPod Touch to your computer with the USB 2.0 docking cable.
Click your iPod's name under "Devices" on the left-hand side of the iTunes browser. Click the "Summary" tab.
Click "Restore." Follow the prompts in the dialogue box that appears to finish the restore. Your iPod will return to factory settings.
Choose to set up the iPod as a new iPod or from a backup in the screen that appears when the restore is complete.
You can reset your passcode after the restore through the Settings app.
A restore will not work on any computer other than the one with which the iPod was last synced. Never disconnect your iPod during a restore or a sync.