I can't tell the difference but my sound system can.
To Coolie:
When you rip a CD, its done in wave format. So all these music files are compressed from the original wave files. Anytime you compress a music file to MP3 (lossy) format, it loses quality. One of the biggest differences between FLAC and MP3 is that a FLAC file is only compressed ONCE while the highest quality MP3 (320kbps) is compressed at least 4 times. But with FLAC, it is compressed in a way where it doesn't lose any quality whatsoever (lossless). So while it may be a somewhat large file, it is still only about 60% the size of the original wave. Meanwhile, those 128kbps (kilobits per second) files Keysersoze asked about are much smaller, but that's because they are compressed 12 times each, so you can only imagine the degradation of the original song. That's cool if you're on the street listening on some crappy Ipod, but when you get home and throw it on your stereo, it makes a BIG difference in the sound quality.
FLAC (and other lossless formats...my fav is wavpack) are GREAT for archiving music