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.
Designed for 1st-2nd grade students, Murky Reef combines reading and math skills in the context of exploring a coral reef. This is the free version, though there is a more robust version available for $3.99. Students can review numbers, sight words, and vocabulary. There is some reporting built in.
Great FREE reading app for pre-school/early readers. Students work through puzzles and games for each letter of the alphabet and build their vocabulary.
This app has been featured in the Apple iPad commercials for teaching young students to write their letters. Beyond the ability to trace, the app also records letter sounds, names, and phonograms.
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.