E-reader stands for e-book reader. It means any electronic portable reader which can read e-books. There are a few in the market, but the Kindle is definitely the best. It has free unlimited 3G internet access and text-to-speech function, and no other e-reader has such function.

There is a good simple article here talking about how the Kindle works:

http://ezinearticles.com/?How-Does-the-Kindle-2-Work?&id=2003315

Yes, you need to buy books for the Kindle. The good thing is that Kindle books are cheaper than actual books. Amazon also provide quite a lot of free books in the public domain, as you can find here:

http://www.amazon.com/gp/redirect.html?ie=UTF8&location=http%3A%2F%2Fwww.amazon.com%2Fs%3Fie%3DUTF8%26node%3D154606011%26redirect%3Dtrue%26p%255F36%3D0-0&tag=more_info-20&linkCode=ur2&camp=1789&creative=390957

There is also some website like this one, which provide over 20,000 free book readable on the Kindle:

http://manybooks.net/

And I’ve to say that I love my Kindle very much. If you are thinking of buying a Kindle, I’ll say get it and you won’t regret. Since Amazon provide books for the Kindle cheaper than actual books, it has saved me quite a lot of money. Right now I’ve read over 10 books with the Kindle, and I really like the idea that I can bring and store all the books with the handy device. Besides, it uses the e-ink technology, so even I read with the device for long hours, I don’t feel tired. My only complaint is the white case, right now all the Kindles are in white color… I think it will be cool if I can have a black or deep blue color Kindle

I’ll suggest you to read this review from a top reviewer, it outlines quite a lot of benefits of the Kindle and also why it is worth especially at the end of the review:

http://www.amazon.com/gp/redirect.html?ie=UTF8&location=http%3A%2F%2Fwww.amazon.com%2Freview%2FR9J54TZ1541OR%3Fie%3DUTF8%26ref%255F%3Dcm%255Fcr%255Frdp%255Fperm&tag=more_info-20&linkCode=ur2&camp=1789&creative=390957

Hope this helps.