When you use the File picker to add a file to your Moodle course, one of the options you need to fill in is the Choose licence drop down list (as below).
Moodle will then hold details of the licence with that file when it is uploaded. This licence will let other Moodle users know what they are allowed to do with the file.
By default the file will be uploaded as All rights reserved. This means that the file cannot be copied, altered, reused without the permission of the copyright owner.
Choose Public domain only if you are sure that the file is out of copyright/freely available for public use. This does not just mean that it can be freely and easily found on the internet, as most materials on the internet are under copyright unless clearly marked otherwise.
Most often, public domain applies to materials where the copyright has lapsed due to the length of time since they were created (e.g. old photos). You will sometimes find that files are being released on the internet as public domain on the internet (e.g. in Wiki commons) because the creator wants to expressly state that they are happy for them to be reused without any restrictions.
Choose Creative Commons if you are aware that the materials have this licence type - they are usually clearly marked with a logo. A Creative Commons licence allows the copyright holder to easily and clearly explain what permissions are in place for the reuse of the materials (e.g. if it can be altered, used commercially, if it has to be attributed).