Lossless vs. Lossy
The majority of our digitized music collections are stored as mp3, aac, or ogg vorbis files. These formats (or codecs) are popular, because the file size is small and the audio quality decent. Like most things in life, the benefit comes with a price. To create small file sizes, the encoder compresses the file by jettisoning elements of the recording it deems unnecessary. It's a pretty advanced process and the results can be quite convincing, but it still looses elements of the original recording. In audio circles, these are called lossy formats.
A lossy audio codec is great when importing your CD collection to your computer. People have been doing this for years. They offer compatibility across platforms and devices. Especially when you have the original copy to refer to. Lossy audio codecs are also the default for purchasing music online from iTunes, Amazon or eMusic.
Lossless audio formats (like FLAC, Apple Lossless, Shorten, and others) maintain all elements of the recording. Encoding music in one of these formats creates smaller file sizes than raw digital audio, but are still much larger than those using a lossy codec. Keeping audio in this format insures that the recording will retain its original quality. While conventional wisdom says this doesn't matter if you have crappy speakers, I disagree. Even on shitty computer speakers, lossless sounds better.
FLAC (free lossless audio codec) is currently the most popular format to trade live shows. Shorten (.shn) is an older format, but still found on many shows on archive.org.
There is no one solution for how to deal with these lossless files. iTunes will not play them natively (attention Apple: after all these years, still a major drawback. Instead of creating a music social network that few use, create an extensions framework for adding additional codecs). Personally, I use the Mac application xACT. It can decode both FLAC and Shorten to a wav file or a AIFF file. I'll import the files into iTunes, and convert them to the Apple Lossless format. Delete the raw audio files and tag the tracks. I usually retain the FLAC or Shorten files for future reference. It takes some time, but works well. If I just want to listen before I decide to go through the effort, I'll use Cog.
It is considered poor form to convert a lossless audio file to a lossy format (ie. FLAC to mp3 for the sake of iTunes). My personal view is: do whatever you want with the audio on your computer, but don't even think about redistributing in a lossy format.
Players (contact with others to include):
xACT (Mac) - will decode FLAC and Shorten to a wav or aiff file that iTunes can read.
VLC Player (Mac, Windows, Linux) - FLAC support. Most people already have this player.
WinAmp - (Windows) FLAC support.
Cog - (Mac) will play Shorten / FLAC.
Sogbird - (Mac, Linux, Windows) FLAC support.
Audio Compression on Wikipedia
Xiph - Official home of FLAC, OGG and others.