What is the little dot at the top of the ipod touch not the button at the corner?

It is a light sensor. It increases or reduces the brightness of the backlight judging by the light you are in. For example, if you are outside on a bright sunny say, the brightness would increase so you could see it better. If you were to be in a pitch black room, the iPod Touch would reduce backlight so you don't waste as much battery power while you can still see the screen.