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Book creator for elementary students that not only allows students to create and share their eBooks but also draw directly in the book.

Simple eBook creation tool for elementary students. Draw, type, and record audio within the app

Tons of examples of books created with Book Creator.

This is an interesting take on eBooks for pre-school children. Though not free, the app includes audio books, games, and the ability to send a custom report on the students' progress.

Digitally create 3D popup books with your iPad! This is a very cool digital storytelling tool. Thanks to @lhhowell for the suggestion.

This is a great article about the evolution of reading. Given the influx of iPads and eReaders into classrooms, the concept of "books" is certainly changing.