Generally you would use WAV files for short sounds (Special FX) and Mp3 or other compressed format for music and large sounds.
I've heard that, but I always wonder, why? Is it loading times? I have several theories on this, but I want to know other people's opinions on this, as I am wondering if I am doing something genuinely 'wrong.'
For size purpouses seems the best option.
Wav are default. You don't need extra libraries to use them, so they are easy to access and control.
Mp3 size are very small, but you need to go a little further to use them.
Just an advice that was very useful to me: "wathever works". If it works and it has good performance, go with it.