Roxie,
The difference between iPod and MP3 players is like the difference between Coca Cola and Soda. An iPod is just one particular brand of MP3 player. There are several brands. In the US and to a lesser extent everywhere else in the world iPod is the most popular brand. Just like there is Cherry Coke, regular Coca Cola and Coca Cola Light, there are variations in iPod models as well.
MP3 is the name of the format used to store audio files digitally. You can import audio content from your CDs onto your PC as MP3 format, or buy audio content as a digital download as MP3 format. MP3 audio files can be transferred to MP3 players like the iPod from your PC.
The first generation of small sized players that were introduced such as the iPod, could only play audio. MP3 was the most popular format that music and other audio content was stored in on these players. Hence they came to be called MP3 players.
The newer models of players play both audio and video content. You can not just listen to music but watch movies or tv serials on them. There are multiple formats of digital media content that can be played on such players such as MPEG4, WMV, DivX. So technically this new breed of players are not just MP3 players because they support one or mopre video formats as well. They are called "media players" strictly speaking. However the term MP3 player is still used loosely to refer to them as well.
iPod's newest lineup of models are all media players (except the Shuffle). They can play audio as well as video.
Chief competing models are the Sansa line from Sandisk, Samsung, Creative, Sony, Archos, iRiver.
The audio only players tend to be cheaper than the video+audio models.
Within the audio-only player models there are:
a. rudimentary players without a screen such as the iPod Shuffle that are ultra small but you cannot see what is playing or "scroll" through the collection on the player to "find" a song.
b. players with a basic monochrome screen that displays the name of the song playing and let you scroll through your songs/audio files.
c. players with attractive, color screen that let you organize music/audi into playlists, scroll through content based on artist/album/playlist. These display the album art while the song plays.
The media players (audio+video) all have attractive color screens.
When you buy a player - whether audio only or audio+video you can buy a flash-memory based player or a hard-disk based player. The former are compact but can store less content. They are popular for use during exercise because they are small-sized. The hard-disk based players are bulkier and have larger storage capacity. People who like to carrry around large collections of content prefer these models.
The iPod Nano, iPod shuffle and iPod Touch are iPod's flash based players. The iPod Classic is their hard-disk based model.