From the Touch itself, without a PC you can:
You can remove apps and the space is freed up.
Somehow at various times I've been able to delete movies when I've finished watching them. But I've not been able to do this every time.
From a PC, you can add and remove anything you want. When you plug in the Touch, it comes up with special menu and you can select or unselect checkboxes for everything (music, apps, photos, movies, etc) and then it synchronizes and space is used based on what you selected.