You must be viewing the iTunes app on the iPod Touch. The 'redeem' feature is used when you want to add iTunes cards to your iTunes account. This allows you to do it while you are on your iPod, so you do not have to be connected to iTunes.
You do not redeem gift cards to the iPod Touch, but rather to the account. Go onto iTunes (through your computer), and go to the iTunes store. At the top right hand corner of the iTunes home page, there should be a 'redeem gift card' option. Just enter the code there from the back of the card and it will appear on the account, which, when you connect to iTunes via Wi-Fi on your iPod Touch, will automatically update to show that.
how do you undo the redeem on itunes
Scrolling to the bottom of the page in the App store reveals a Redeem button which is used to redeem an iTunes Gift Card.
The Redeem button can be found by scrolling to the bottom of the page in the iTunes or App Store apps.
If you have a gift card to redeem open the iTunes software and click on the iTunes store link. In the Quick Links box in the top right corner select Redeem and follow the instructions to type in your gift card number.
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To redeem a gift card in iTunes, click iTunes Store in the iTunes program. Then go up into the right hand corner where your username is and a arrow should appear. Click the arrow and when the drop down box comes up, click redeem. It should ask for the code on the back of the gift card. Type that in, and you have redeemed your gift card! On a mobile device scroll to the bottom of the page in the iTunes app or App app to find the Redeem link.
If you're referring to an iTunes gift card (the ones with a silhouette on them), you can't add it to your iPod Touch. The gift card is to buy music,apps,etc. on iTunes. You'll have to download iTunes, set up an account, and then on the iTunes Store homepage you can click on the "Redeem" link in the upper right hand column.
To use an iTunes Gift Card to pay for your songs click on the Redeem link in the Quick Links box (top right) on the iTunes store home page.
Go to iTunes Store when on iTunes and click the "Redeem" button
In the iTunes or App Store apps there is a Redeem button at the bottom of the page which is used to add an iTunes gift card.