What file format should I use, MP3 or AIFF/WAV?

MP3s are compressed audio files, meaning that there is some loss of quality. Exactly how much loss there is is a widely debated topic. The advantage of MP3s is that they take up less space on your hard drive.

AIFF/WAV (the two formats are essentially the same with respect to sound quality and files sizes) are uncompressed, and therefore sound better than MP3s, but take up more space on your disk.

MP3s need to be decoded in order to be played, and therefore require more processing. If you are looking at this question from the point of view of computer performance, uncompressed audio required less processing time, because it does not need to be decoded, but requires much more disk time, because of the amount of data being moved around.

The bottom line is, uncompressed audio sounds better, but requires faster disks. Compressed audio (such as MP3) doesn't sound as good, but uses less disk space (by as much as a factor of 10). It uses slightly more CPU because it needs to be decompressed.