Create comic books and illustrations that include monsters and superheroes. The images and drawing tools can be used for a variety of literacy & numeracy activities as well as storytelling.
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.
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.
This app takes the book character into the virtual world. Students can create their own Flat Stanley adventures and contribute to a monitored community