We take it for granted, but its devastating not to be able to form new memories.
Example: Clive Wearing, the famous British choir director

Echoic Memory auditory, 3 or 4 seconds
II. Encoding
We encode many aspects of various stimuli we come across in our everyday lives:
Visual the image of it
Acoustic its sound
Semantic its meaning
Gordon Bower found that people could memorize words better if they were organized into categories rather than being randomly presented (e.g. being grouped into categories such as animals, pieces of furniture, fruits, etc.)
Short-term and Long-term memory (STM and LTM)
Where are memories located?
Intense stimulation of neural pathways results in long-term sensitivity (so threshold of excitation is lowered for long periods of time).
Drugs that block LTP disrupt memory formation - certain knock-out mice missing crucial enzymes can't learn.
Also, drugs that are present during stress (adrenaline)
enhance memory formation - Jim McGaugh and his studies on rats given adrenaline,
and humans remembering boring or exciting stories
Videos: The Mind #24 (Life Without Memory: The Case of Clive Wearing: 12 min.)
Mr. Clive Wearing, an extremely accomplished and world-renowned musician and choir director, suffered from viral encephalitis in the early 80's, a disease that destroyed both of his hippocampi, located in the temporal lobes, and also a portion of his left frontal lobe. Clive can literally not remember what happens from one minute to the next, so is constantly thinking that he is becoming conscious for the first time. It is a very frustrating experience for him. The only things he shows any knowledge of from the past are very well-learned procedural memories (talking, walking, playing the piano, singing), and his wife, Deborah (who is a saint). This is a very moving video indeed, and gives one a glimpse of how dreadful our lives would be if we could not link events together in time. There's another, new, video about Clive, but it's too long to show in class. Briefly, Clive is still alive, and living in a very nice house/facility in the country where every effort is made to provide him with as stable an environment as is possible. Deborah comes to visit for weekends as often as she can, and Clive's behaviour seems less angry and frustrated than it was in this first module, filmed about 17 years ago.
Brain 2nd Edition #20 " A Supermemorist Advises on Study Strategies" (10 min)
Here we see Rajan Mahadevan, who has an absolutely phenomenal memory for digits. After demonstrating his memory for digits, he gives us several pointers for studying and learning new material. Some of these tips involve: motivation, active listening, immediate review (looking over your lecture notes from each class THE SAME DAY), attending classes regularly, paying attention to context, distributed study, last-minute review prior to an exam.
Scientific American Frontiers #23 Remembering What Matters (8 min.)
Jim McGaugh, famous for his work involving animal memory, talks about the importance of adrenaline (the 'fight-or-flight' hormone) to memory formation. These hormones that let us get away also help stamp in memories, so we remember things that have more emotional relevance to us. Drugs (beta-blockers) that block the effects of these hormones block memory formation in the rats. These same experiments can be adapted for use in humans. The same set of slides is shown to two sets of participants; one set hears a boring story, and the other set hears a rather emotional story line associated with the slides. The group that heard the emotional story line are much more likely to retain the details of the story when tested two weeks later. The beta-blocking technique is used on human subjects as well, and they also exhibit poor recall of the story, in spite of having heard the emotional version of it, indicating that adrenaline was likely the mediating factor in promoting memory retention. The most active part of the brain when an emotional memory is stored is the amygdala.