What is transcoding?

Transcoding is the process of converting one compressed format file to another.
For example, a MP3 converted directly to Ogg Vorbis or Ogg Vorbis converted to Wave then to MP3 are both examples of Transcoding.

Why is it bad?

The process of converting a song to a lossy format like MP3 or Ogg Vorbis involves the removal of audio data in the effort to reduce the file size. The removal of this data not only enables the reduction in file size but also in quality.

Converting an MP3 to OGG or WMA converts a file that already has lost a lot of quality and takes more quality away since OGG and MP3 are also lossy processes. Think of it as copying and copy.

This is also true for reencoding which is for example converting an mp3 to mp3. Reencoding will always deteriorate the audio quality, even if you are converting a 128Kbit/s mp3 to a 320Kbit/s mp3. This happens because the mp3 is decoded to a wave then is encoded to a 320Kbit/s mp3. This recompresses the Wave and takes away or filters more audio data for compression purposes.

So when you find a new, better audio format, don't convert all your files to that format because you think you'll be getting better quality, you'll be getting inferior quality instead. The best way to convert your existing compressed music collection is to re-rip from the CD directly to that new format.