I think it's for the programs that are on the iPod and help it run. (Part of it is probably for the games). It's nothing to worry about; all iPods have that.

I know this is an old question but I decided to answer it just in case anyone needs the whole answer. It basically depends on how much space that the "other" category is taking up. If it's a small amount like 154.2MB or such, it is the operating system for the iPod and there's nothing you can do to get this space back. If you deleted it, your iPod would no longer run. However, if the amount of space it takes up is large - like 2GB or more - then there is something wrong. Most likely, it is corrupted files or ghost files that shouldn't be there. Don't listen to what people tell you - it is NOT album artwork (unless you have an extremely large amount!) or game files or anything like that. Corrupted, ghost, and temp files are particularly prevalent in iPods that have been used in hard drive mode, but it can happen to iPods that have never been used that way - like mine. I have a 32GB 2nd Gen iPod Touch. I had only 3.2GB Music, 9.1MB Pictures, 33.4MB Apps, 151.4MB Other, and 26.24GB Free. I went to sync my iPod earlier and all of a sudden the Other jumped to 3.4GB space! At first I thought maybe one of my apps was storing info on my iPod or something. Everyone kept saying it was Album art and such. But I'd had album art on there before and it wasn't that high! I did a soft reset (when you hold down both sleep/wake button and home button) and that didn't work. I restarted iTunes and sync'd again - didn't work. The only thing that did work was doing a system restore THRU iTUNES! Don't do a reset on your iPod unless you absolutely have to - it takes forever. Anyway, after I did the system restore, it went back to normal. I also didn't lose any info from my apps which was awesome. Just thought I'd post this in case anyone needs the answer!