in itunes, right click on the song that you want to put lyrics for. click on 'get info'. when that opens, go over to the tab that says lyrics, then copy and past the lyrics into the box and press okay. the next time you sync your ipod they'll be there.
You can automate the process of adding lyrics to all your songs with the Soundcrank iTunes plug-in. It can be downloaded from http://www.soundcrank.com. Then when songs are synced to the iPod the lyrics will appear.