Skitch by Evernote
Skitch provides a fun way to annotate photos, maps, diagrams, or just about anything you want to mark up. Skitch is made for the iPhone, and Mac, but is a joy to use on the iPad. You can use Skitch to add arrows, shapes, text, and blur effects, to your photos, and you can even grab clippings from the web. It also syncs seamlessly with Evernote, the makers of Skitch. Skitch is free in the App Store. Check out the screen shots and video below.