I was very impressed with the documentation that came with my new Fluval 304 filter - especially the part about filter media selection. I paraphrased their description of the three main filtration levels and added some of my own thoughts too.
The media that sees the dirtiest water first should have excellent mechanical filtration properties, and should be easily accessible to be rinsed out or replaced from time to time. It also has the job of breaking up the water flow so that it is more evenly distributed across the entire surface area of subsequent media layers. This layer won't play host to many bacterial colonies because the large surface area will soon become filled up with debris. Foam blocks and filter floss do a great job, and they're both relatively cheap.
The next layer of media is highly variable. It can provide additional mechanical filtration to remove fine particles, chemically modify the water (peat, carbon, crushed coral, PhosGuard), or provide additional biological filtration.
The final layer of media comes in contact with the most particle-free water stream. Bacterial colonies will thrive in these conditions if provided with media possessing a very high surface area/volume ratio. Ceramic cylinders and granules extremely well for this purpose. As mentioned, there are cheaper alternatives like sponge, but this layer shouldn't have to be replaced often, if at all, so long as the upstream filter layers are being maintained properly. Personally, I prefer the ceramic media because it will never ever compress or degrade over time, unlike sponge and polymer-based media like filter floss.
