CDG is a special format that is an extension to the normal CD music format. The graphics for the lyrics are kinda tucked along side the music. I actually have a DVD player that will play this format, but it is old, and I think it is an anomaly. I have never seen any others that would support it.
I have a blog post on pretty much this topic...
http://john-the-revelator-does-karaoke.blogspot.com/2010/03/so-you-wanna-be-karaoke-host-part-3.html
If you want the lyrics to show up, then you could buy a cheap karaoke player. I have some examples in this blog post:
http://john-the-revelator-does-karaoke.blogspot.com/2010/03/so-you-wanna-be-karaoke-host-part-2a.html
Or, you could buy a piece of software for your computer. I have some examples in this blog:
http://john-the-revelator-does-karaoke.blogspot.com/2010/03/so-you-wanna-be-karaoke-host-part-2b.html
There are a number of plugins that you can add to WinAmp to get karaoke songs (CD+G) to play. I had one installed on an older computer. I don't remember what it was, sorry. It worked ok, but the lyrics screen was kinda tiny.
http://www.winamp.com/addons/search/karaoke
Another option is to use your iPod. Luckily the answer is not that difficult or expensive. All you really need is a cable. I found one on Amazon for about $9. (http://www.amazon.com/gp/product/B001202514/ref=oss_product) One side of the cable plugs into your iPod, the other side has three RCA plugs for S-video. S-video is an input that you will find on most TVs. One of the RCA plugs is for the video, one for the right channel and one for the left.
You will need to tell your iPod to send this TV output. Go to video settings on your iPod and make sure TV output is enabled.