Music on the internet comes in a variety of different file formats. The most well known of which is the MP3. Just under a decade ago music files on the internet were huge files that were practically impossible to download on the dial-up connections of the day, the MP3 changed all of this by compressing them to around a tenth of their original size. This compression results in a slight loss of quality from a CD recording, but this is barely noticeable in most cases.
More recently new file formats have appeared and been adopted by download sites including the WMA (or Windows Media Audio), which is used by Napster amongst others, and AAC which is used by Apple's iTunes service.
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