1) Convince more people to buy a Kindle on the margin, so you increase the number of eBook customers
2) Amazon gets a bigger piece of the eBook market, which they can maintain over time through network effects (you can read Amazon's ebooks anywhere in the cloud, but their books don't play well with other books, and you don't get any DRM rights).
The publishers are stonewalling this move, and so Amazon loses money on most eBooks it sells. With the iBook market starting out at $15, they now have another excuse to avoid passing on savings to customers.
The odd thing here is that this must be the only market in which competition is raising prices. If Amazon didn't have the clout it did in online retail, it would probably be forced to go along with Apple and the publishers at the higher price point as well. As it is, you can expect the average eBook to cost more now that Apple is in the market.
Update: Looks like Amazon has caved in. Apple has taken on a monopoly, and consumers are worse off. It really can't be emphasized enough how much publishers are hurting their readers here. Fortunately, eBooks are going to destroy their gateway status and their industry will (some day) collapse.