Spectronics, a company that focuses on Inclusive Learning Technologies, has put together this list of apps for literacy support. Not all of them are free, but they make great suggestions.
This is a great review of a standard app - iBooks. It also includes a link to a great podcast about alternate ways to integrate iBooks into the classroom
This app is free until April, though know that some content becomes an in-app purchase. Bookabi allows students to create their own storybooks with 2D and 3D characters. They can upload their own photos and pictures plus save and share their final projects.
iPad Academy is a great blog, and to celebrate it's 50,000 visitors, they posted this list of "70+ starter apps". It's a great resource for getting started with iPads.
This article from I Education Apps Review lists out a series of apps to use for creating custom digital content. Not all are free, but the list presents some interesting options.
This site features reviews of apps from Apple Distinguished Educators. In addition to organizing apps by theme, it also presents them by multiple intelligence and Blloom's Taxonomy.