Requirements: iPod Touch running iOS <=4.0.1, Wi-Fi connection.
1. Open Safari on your iPod and go to www.jailbreakme.com.
2. Slide to Jailbreak!
This will start the process.
3. After downloading is finished, the actual jailbreaking begins.
4. When you're done, you will receive a confirmation message. Now you can close Safari.
Congratulations, you have succesfully jailbroken your iPod Touch!