To take a screenshot on your iPod Touch just tap the Home and Sleep buttons at the same time. This will cause your screen to flash and the screenshot will be saved into your pictures folder in the Photo app.

This requires iPod Touch Version 2.0 which is a $10 upgrade from iTunes. This 2.0 update is well worth the $10 upgrade price because most of Apps in the iTunes Store add so much to your iPod Touch when you are not in a Wi-Fi zone.