What is WAV?
WAV (or WAVE), short for Waveform audio format, is a Microsoft and IBM audio file format standard for storing an audio bitstream on PCs. Though a WAV file can hold compressed audio (alaw, ulaw, ima adpcm, creative adpcm, microsoft adpcm, mp3 codec etc), the most common WAV format contains uncompressed audio in the linear pulse code modulation (LPCM) format. The standard audio file format for CDs, for example, is LPCM-encoded, containing two channels of 44,100 samples per second, 16 bits per sample.

What is MP3?
MP3 stands for MPEG Audio Layer 3, which revolutionized digital music. Derived from the audio sections of the MPEG-1 and MPEG-2 video specifications, MP3 compresses CD-quality sound by a factor of roughly 10, while retaining most of the original fidelity. MP3 files are played on the computer via media player software, such as Apple's iTunes and Microsoft's Windows Media Player, as well as in countless iPods and other handheld players. While 128 Kbps (kilobits per second) is considered the norm for MP3 files, MP3s can be encoded to bit rates from 8Kbps to 320 Kbps. The higher the bit rate, the better the sound and the larger the file.