Digital sound files can be created in a  number of different formats. 
Broadly, the main categories are Compressed or Uncompressed. 
Compressed formats (such as MP3) have much smaller file size than Uncompressed formats, but there are sacrifices in terms of the quality of the sound. 
Portable devices (such as MP3 players) trade off a reduction in quality with the ability to pack in thousands of files. 
The quality of streaming services (such as Spotify) can be increased, if you use wifi or have a good data connection. 

Sound files can be created by any sound editing software – there are free services such as BandLab available for combining multiple sounds and creating complex mixes, and then higher-end (paid) software such as Logic Pro, Adobe Audition and Pro Tools. 

Uncompressed

The best way to store data for high quality playback, as it requires very little processing in order to retrieve the audio data. More compressed formats (below) can cause audio glitches on some systems.

.AIFF

• Apple standard

WAVE (or .WAV)

• Standard for uncompressed CD-Quality audio on Windows systems, which uses PCM format recording. A CD-quality recording has a sample rate of 44.1kHz at 16 bit resolution.
  • File size: approx 10.1Mb per minute. This figure is the same for all WAV files at CD quality, as file size is only related to file length, not to the audio content of the file. The figure is reached by the following calculation;
    2 channels [stereophonic] * 16 bits * 44100 samples per second * 60 seconds = 84,672,000 bits = 10,584,000 bytes = 10.1 Mb
    (this can also be expressed as 1411kb per second).

.BWF (Broadcast Wave Format)

• Used in portable audio recorders and digital audio workstations for broadcast use.

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Lossless Compression

Contain the full audio information, but with reduced file size, by storing the data more efficiently.

.WMA Lossless (Windows Media Audio)

• Designed with Digital Rights Management (DRM) abilities for copy protection.

.ALAC (Apple Lossless Audio Codec)

• Open source and royalty free since 2011 (although it was initially proprietory to Apple)

.FLAC (Free Lossless Audio Codec)

• Open source, royalty-free licencing of the format

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Lossy Compression

.MP3

• Compressed sound file format, developed by the Motion Picture Expert Group (MPEG) as part of their MPEG1 video standard, and later extended to MPEG2 Layer 3 standard.
  By eliminating portions of the audio file that are essentially inaudible, mp3 files are compressed to roughly one-tenth the size of an equivalent PCM file while maintaining good audio quality.
  There are 2 parameters that can be adjusted to vary the quality and size of the MP3 file.
  • Bit Rate
  • Sample Frequency

• Examples of MP3 compression 1m10s excerpt from Symphony No.3 by Camille Saint-Saëns
  • CD quality WAV (11.7Mb) [uncompressed PCM audio – Windows]
  • CD quality AIFF (11.7Mb) [uncompressed PCM audio – Apple]
  • 320kb/s constant bitrate (2.67Mb) [compressed MP3]
  • 128kb/s constant bitrate (1.07Mb) [compressed MP3]
  • 64kb/s constant bitrate (548kb) [compressed MP3]
  • 32kb/s constant bitrate (274kb) [compressed MP3]
  • 16kb/s constant bitrate (137kb) [compressed MP3]
  • 8kb/s constant bitrate (69kb) [compressed MP3]
• More information
  • Wikipedia page about MP3

.MP4 or .M4A

• AAC compression based successor to MP3

.M4P

• A proprietary version of AAC in MP4 with Digital Rights Management developed by Apple for use in music downloaded from their iTunes Music Store.

.OGG
Ogg Vorbis

Open-source patent-free compressed audio format.

WMA (Windows Media Audio)

• See above.