This makes perfect sense, because anyone who uses a computer outside work uses it primarily for browsing and reading the internet. But the form factor of a laptop is such that you use it while sitting at a desk. An iPad lets you take the internet to places where reading is more comfortable: the couch, the bed, and yes, the bathroom. This, more than everything else put together, is its killer feature.
But as a reading device, the iPad is imperfect. It's way too heavy to hold comfortably, it's too big, and the processor and memory that make it so versatile are overkill for a digital reader.
The argument has been made that a low-cost tablet cannot be a competitor to the iPad, since even the iPad is not a powerful enough computer. But the iPad is a laptop replacement for relatively few people. It's great for email and basic word processing, the aforementioned Garage Band and Brushes apps are great fun for creating music and drawing, and there famously are tens of thousands of other apps to explore. But it falters for the hundreds of big and little tasks we do with our computers that involve using more than one program at a time. (Try posting a video you've found on Twitter to your Tumblr blog. Or try saving an image from the internet, cropping it, and uploading it to your blog. These are things that many computer users do every day, and while they can theoretically be accomplished on an iPad, it takes an extraordinary amount of effort and creative workaround.) The Kindle tablet is even less likely to be a viable laptop replacement than the iPad, but I don't think that's a significant factor in its prospects for success.
So what does the Kindle tablet look like? It's nothing like the Kindle we know now, which is black and white, doesn't have a touch screen, and uses e-ink rather than an LCD display. MG Siegler has seen and used a prototype. He describes something that's outwardly very similar to the iPad, but 7 inches diagonally rather than 10. In other words, it's the size of a paperback book. That should make it around half the weight of the iPad, and exactly perfect for reading. The software includes a web browser, a movie player, and of course a Kindle book reading app. While the interface is custom-made by Amazon, it runs the Android operating system, so the device will be compatible with at least some of the software in the Amazon Appstore. That means there will presumably be some basic native apps available. Once the device takes off, the makers of popular iPad apps will at least have to strongly consider creating versions for it.
In many ways, the Kindle tablet will resemble the Nook color, which has been out for over a year. Amazon has a lot of experience creating reading devices, and we can assume that they've used that time to work on its device and make it great. It'll be faster, and hopefully the software will be better than the current versions of Android, which have kept almost everyone reviewing Android tablets from recommending them. This is the main factor that's allowed the iPad to maintain its stranglehold on the tablet market. The device will tightly integrate with Amazon's website, which sells not just e-books and music, but has recently begun streaming movies.