LAME is a very popular LGPL MP3 encoder. For a long time LAME version 3.90.X was recommended, now version 3.97b has been released. This version uses the -V setting, with a value from 0 (highest) till 9 (lowest) quality in VBR. More details about these settings can be found here.

Instead of lossy compressions like MP3, there are also losless codecs like FLAC (Free Losless Audio Coded). No quality is lost, but the file size is much bigger. Here are some results in applying the above settings on a regular audio cd:

You can assume that with the settings used here you cannot distinguish the mp3 from the original cd. A very good resource about audio, codecs and tests is Hydrogenaudio . This graph gives a nice relationship between the file size and audio quality for the LAME encoder.  Between V0 and CBR320 setting, you see the file size increases by 50%, whereas the quality does not increase as much as that.