Yes, mp3 is a lossy format. When compressed with Lame at v2, it’s almost transparent, but still lossy and some people can hear the difference, especialy on good equipment.
As far as I know, iTunes sells music in AAC format, which can be either lossy, like mp3, or lossless, like FLAC. I have no idea though, if all albums can be downloaded in both formats or are those sold seperately. Most likely, an artist or the label decides on the formats available.
But I never used iTunes, so I may be talking BS ;)