To begin, let me clarify my understanding of your needs. Please add a comment and clarify in your question if these are wrong:
- You intend to build a site that will play audio
- Audio will not be one continuous stream, but will be made up of individual files
- Your audio will generally be music
Now, on to your questions:
(1) As I heard I need to use a streaming media server for streaming audio files ( like 2mb to 3mb in size).. Do I need to use one?
(3A) if I host audio files in a normal web server, they will use HTTP or TCP to deliver my audio files to users/ listners but I found that HTTP and TCP are not good ways to use for multi media purposes like streaming audio and video files, and they are used for delivering HTML and stuff.
Nonsense. Streaming media servers, such as SHOUTcast/Icecast, are actually just HTTP servers that send content as it comes in from an encoder. The client doesn't know the difference between it and HTTP. Metadata is interleaved into the content stream at the client's request (made with a special request header), but it is still compatible with HTTP.
HTTP is a protocol that is good for transferring any type of content. Ever download something from a website? That would have been with HTTP.
If it's good enough for YouTube, Sound Cloud, Pandora, and just about everyone else, it's probably good enough for you as well, 'eh?
(3B) I found I should use RSTP or UDP for streaming audio files.. What should I use?
TCP is an underlying network protocol that ensures reliable transmission. Packets are received in the proper order, and are acknowledged so that any lost packets can be re-transmitted. There is some overhead with this. The reason UDP is sometimes used is that it provides lower latency at the cost of being unreliable. This is fine for telephony communications, but is pointless for media that is not time sensitive, such as a bunch of audio files coming from a server. In fact, if you get a few too many corrupt packets, your audio player will often simply stop decoding the file, and would need to be restarted.
RTSP is way overkill for your needs. It supports a bunch of stuff for media control, variying bitrate on the fly, etc. This is not appropriate for your situation. Perhaps if you were streaming live video, or lengthy content, this would be more appropriate.
(2) I heard I need to encode the audio files first and then send them to listeners and in their end audio files need to be decoded again. Is that true? How can I do that? if I need to use a special web server, where should I host my files? Any good hosting providers?
You need to pick a codec for encoding audio that the client supports. I assume you will be using HTML5 with a Flash fallback. Unfortunately, there is no codec available that is universally supported. See the chart here: http://html5doctor.com/html5-audio-the-state-of-play/#support
(4) I know that .MP3 files has much better quality than the other formats but it also gives huge size to the audio files.. which format should I use for audio files?
Check your assumptions at the door, you are very wrong here. Keep in mind that the raw PCM data is often 8 times larger than MP3 (depending on chosen bitrate of course). In any case, you will want to encode to AAC, MP3, and Vorbis for widest client compatibility. aacPlus is an extension of AAC and is generally considered the standard for decent quality audio at relatively low bitrates. A 128kbit stream in AAC will sound better than a 128kbit stream in MP3.
(5) Most of the best quality audio files are more than 7mb so I'm planning to convert them my self using a software so I could get low size files with some level of good quality. If I'm converting my audio files what is the good BITRATE I should use for my files?
This question is very subjective. Personally, as a musician and audiophile, I prefer to hear stuff in its original quality. I use FLAC for compressing my music library, as the quality is lossless. For your needs, this will take up way too much bandwidth. Most folks don't know the difference between a 128kbit MP3 and the original. Many "premium" internet radio stations offer 128kbit aacPlus and 256kbit MP3. Pandora offers 96kbit MP3 for regular users, and 192kbit MP3 for premium users. Experiment, and pick a set of bitrates that work well for you and users.
Always keep the original around. It doesn't have to be on your servers, but you need it. If you re-compress a file that was already lossy compressed, then you are losing additional quality. If you make 3 compressed versions of one source, make sure you're doing so from the original source.
(6) Any known best softwares for converting audio files while keeping quality in a good level?
If it is legal for you to use, take a look at FFMPEG. It can handle just about any codec you can think of. As a word of caution though, do look into it to make sure you are paying all of the license fees necessary. Some of the codecs contained within are patented. I'm not a lawyer, and have yet to be able to figure out the legalities of using them on a commercial site. All I know is that it is heavily debated.
