The Procedure
Boot up iTunes and make sure it's fully loaded on the screen. Then, switch off your iPod Touch using the on/off button.
Next, you'll need to hold down the Menu button while plugging the USB cord into your laptop or personal computer.
Start pressing the Home button once your USB cord is in place, and wait to see a message on the screen. This alert should let you know that iTunes has found your hardware (your iTouch).
Click anywhere on the bulletin, and wait for a stream of information about your iPod to appear.
At the end of this barrage of data, you'll be asked whether you want to delete all of your saved settings and return to the factory settings. This sort of reset is what's known in the industry as a "hard reset".
Click the Restore button; then hit OK. You may need to wait as your iTouch is processed and reset. Eventually, it should work as you need it to. Bear in mind that this method is not always successful.
You can always contact iTunes or Apple customer support to find out more about hard resets; however, if you did not come by your iTouch legally, this may be uncovered during a discussion with technical support. In general, it's always best to connect to iTunes when trying to restore your iTouch.