Apple iPods 101 - Manual (Page 58)

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iPod Preferences
When you connect your shuffle you will get access to a few
iPod settings in iTunes preferences. Keep this iPod in the
source list, also known as shadow mode, is a cool feature
that lets you modify the shuffle playlist even when the
shuffle isn't connected. You can add, delete, Autofill, and
top off to your heart's content, just as if the iPod were
there. When you connect it, your spiffy playlist is copied
over to the iPod.
By turning on "Keep this iPod in the source list", you can
edit your shuffle's playlist even when the iPod isn't there.
If you create a playlist you're particularly fond of, you can
save it forever. Just select all the songs, then choose new
playlist from selection from the File menu.
There is also a preferences setting for enable disk use,
including a slider that lets you indicate how much space
you plan to use for files vs. tunes. This slider simply tells
iTunes how much space to leave for songs when you
Autofill or add songs to your shuffle manually; it doesn't
actually partition or reserve space in the shuffle's flash
memory.