Notability (paid)

Function:

Note Taking: Users can take notes as typed text or free hand annotations.

Annotating Text: PDF files can be annotated.

Audio Recording: Users can record the speaker during a lecture or make their own audio recordings. 

Works on:

Comments:

This is a very versatile app.  It allows you to organize your notes into categories and subjects which would be very helpful in a shared iPad situation.  The audio recording is synchronized with the text so you can click anywhere in the text and playback the audio at that point.  

For annotation, it supports highlighting, post-it notes, freehand drawing and audio notes.

A free alternative (without all the features) is PaperPort Notes.  

Resources:

Edshelf Overview and Review

          How to import PDFs and annotate on them (Note: you can also import PDFs with the Open in ... functionality)

          Annotation Tutorial 

          Introductory Video (This screencast is 12 minutes long and was made with an earlier version of Notability, but includes a good overview)