In my documents\electronic arts\sims 3 there should be a custom music folder. Songs you put in there will be played if you set your radio to the custom channel. No custom music in build/buy mode. There's also a mod which lets you make playlists on MTS somewhere.
Thanatozz is right.
Go to My Documents - Electronic Arts - The sims 3, there will be a document that's named 'custom music'. Simply copy and paste songs from your itunes folder (if you use itunes) into this folder, and when you're in the game purchase a radio/stereo.
If you get your sim to change the station to 'Custom Music', it plays random songs that you put in that folder.
I would also kill to be able to play custom music in build/buy btw!
I like the music in Buy/Build but usually end up muting it because it gets a bit annoying after a while.
I tried putting some of my MP3s in the Custom Music folder, but either they aren't playing or I'm not hearing them in-game. I remember reading where someone said they couldn't hear the custom music unless they turned their music volume WAY up. I forgot to see if that worked.