Understanding Audio Quality

When referring to audio quality, bitrate is a measurement of bits per second that audio distributes. The sound quality will improve as the bitrate improves. For example, MP3 files with a bitrate of 128 kbps are more likely to sound better than MP3 files with a bitrate of 64 kbps.

Digital audio has a sample rate, bit depth and bit rate. They are usually compressed to reduce file size and stream more efficiently over networks. Compression can be lossy or lossless.

1. sample rate - the number of audio samples captured every second. Telephone networks and VOIP services can use a sample rate as low as 8 kHz.  
2. bit depth - the number of bits available for each sample. The bit depth may be 8-bit, 16-bit, 24-bit, 32-bit. The higher the bit depth, the higher the quality of the audio. Bit depth is usually 16 bits on a CD and 24 bits on a DVD. 
3. bit rate - the number of bits encoded per second of audio, or the number of bits transmitted or received per second. Bit rates are usually measured in kilobits per second (kbps).

Bit rate calculation
bit rate = bit depth * sample rate * number of channels

File size calculation
http://www.audiomountain.com/tech/audio-file-size.html

Uncompressed - Lossless (Audio CD, PCM WAV, AIFF)
Lossless are the highest quality files you can get and come mainly in the form of WAV (Microsoft), AIFF (Apple) & FLAC.  These files start off at the equivalent quality of a CD with a bitrate of 1411 kbps and a sample rate of 16bit but can go all the way up to 24bit / 192Khz. A WAV for example can be approximately 3.5 times bigger than a 320kbps MP3.

FLAC and ALAC are open source lossless compression formats.

Compressed - Lossy (mp3, m4a, aac, wma, ogg)
Compressed files come in varying quality rates and formats of which MP3 & M4A are the most popular. The bit rate for compressed files can go from 8 kbps up to 320 kbps.

Ogg Vorbis is an open source alternative for lossy compression.