Book

Books are crafted from paper and currently serve no gameplay purpose except in the creation of the decorative bookshelf blocks. Books and paper can naturally occur in chests, inside strongholds.

Though it hasn't been confirmed yet, it has been mentioned that with the new code Notch made for the maps, he will be able to, in future updates, make books that players can type in and share with other players. The same thing can apply to custom paintings.

Crafting
Books are crafted from three paper in a vertical column.

As a Crafting Material
Books can be combined with Wooden Planks to craft bookshelf blocks.

Future uses
According to Notch, there may be practical uses for books as of the 1.8 update.