I never switch off my iPod Touch (except when it runs out of battery). While the iPod is sleeping, it only consumes a negligible (nearly nothing) amount of the battery. Actually, turning off and turning the iPod back on, takes much more battery than the iPod being asleep and turning it back on as the boot up sequence uses a lot of resources.
The main difference between sleep mode and turning off is that sleep mode "suspends" the iPod and applications running on the iPod, while turning off is... well self-explanatory... the iPod shuts down completely.
Hope this post answered all your questions and you now know that putting your iPod to sleep is better than turning it off. Try it yourself! Enjoy!