For a while, Apple has been selling two generations of iPod touch side by side: the 16GB and 32GB, 3.5-inch, Retina display fourth-generation versions and the 32GB and 64GB, 4-inch, Retina fifth-generation models. That confusion finally ended when Apple recently introduced a 4-inch 16GB iPod touch and in the process killed off the older fourth-generation for good.
Did I say the confusion ended? Well, sort of. In most ways, the $229 16GB fifth-generation iPod touch is identical to the 32- and 64GB fifth-generation models released in October 2012. It has the same 4-inch Retina display, the same dual-core A5 processor, the same front-facing FaceTime HD camera (with its 1.2-megapixel photos and 720p video capabilities), the same bundled Lightning cable and remote-less EarPods, and the same dimensions. The 16GB model is in fact notable only for what it lacks: It offers no rear-facing iSight camera, no strap post (and therefore no strap), and no choice in colors (this model comes only with a black face and silver back).
Given that it has no new or improved capabilities over its higher-capacity siblings, your buying choice is nicely narrowed down to just a few factors: Money, storage space, and what you want from an iPod touch’s camera.