Books are used in Neopia to increase the intelligence* of your Neopet. They can be purchased at the Book Shop, or you can use the Search Wizard to search for specific books.
Once you purchase a book, it goes into your Inventory. To read a book to your Neopet, select it. A new window will open with a picture and description of your book and a list of options. If you read the book to your Neopet, it will disappear in a puff of smoke, increasing the intelligence of your Neopet. However, some Neopet species don't like certain kinds of books and will refuse to listen to you reading them.
When users have read a whole lot of books to one of their Neopets, they become eligible to receive a Neopian Book Award.
*NOTE: At this time, intelligence plays no part in your daily interaction with anything on Neopets.com. However, it is rumored that it will become important if and when Neoschools are released.