If the device is on, switch it off. Open iTunes on the computer and connect the appropriate end of the Apple USB cable to the port on the cabinet. Do not connect the iPod touch right now. Press the home button at the bottom, and while keeping it that way, connect the iPod to the other end of the USB cable. You will be able to view the 'Connect to iTunes' screen, after which you can leave the home button. Click on 'OK' once the 'Recovery Mode' message is visible. Your last step would be to click the 'Restore' button in the iTunes interface, for the device to be restored back to factory settings.

Resetting iPod touch PasswordIf you key in incorrect passwords for less than ten times, the device will be temporarily disabled. Here, you are supposed to wait for a while before trying for it again. Before connecting the iPod touch to the computer for resetting, if you try to key in the wrong password for ten times; you will be asked whether you want to erase all content within. Remember that this would only be possible if you have chosen the correct settings in the device, as this setting is deactivated by default. It can be activated by going to the 'Settings-General-Passcode Lock' path on the device.This is some information on how to reset iPod touch to default settings in case you have lost the password. In order to prevent data loss by such incidents, it is recommended to perform a periodical data backup of your iTunes library to a computer. It is also suggested to use the latest version of iTunes for any data transfer. Hopefully, this information might have been useful in understanding the procedure of reseting the password of an iPod touch.