AAC was developed from technology from AT&T, Dolby Labs, Fraunhofer IIS, and Sony to be a follow-on of MPEG-2 Layer 3 (MP3). It's goal is to have 5 full-bandwidth CD quality channels with a bitrate of no more than 384kbps (MP3 needs about 896kbps to do that).
So it sounds better than MP3 at low bitrates, the compression is much better than MP3, but it is not free AFAIK.
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