Last night, Amazon launched for free a Kindle application for the iPhone and iPod Touch. While it’s not the first e-reader for the iPhone, it’s the only one with access to Amazon’s 240,000-book catalog, which could make it appealing to people who have an iPhone but have held off on purchasing a Kindle. The launch comes just a couple of weeks after the company unwrapped the new version of its reading device.

The iPhone Kindle app lacks much of the functionality of the e-paper-based Kindle. For instance, users of the app can’t search for words, highlight text, look words up in a dictionary, or enter notes. It also doesn’t support the text-to-speech capabilities of the newest version of the Kindle. Perhaps most frustrating, however, is the cumbersome process required to download new books to an iPhone or iPod Touch. There’s no direct button that gives access to Amazon’s Kindle store via the phone itself. Instead, users must go through Safari, Apple’s Web browser, where they need to zoom in and pan around on the site. And right now, the store only offers books, not periodicals.

Even with all these limitations, however, the reading experience on the iPhone is pleasant. The iPhone’s screen is color, so book covers come through as they were designed, instead of black-and-white, as on the Kindle (due to the limitations of e-paper). Users can choose between five font sizes and jump to the table of contents, or to a particular page (denoted by page numbers that correspond to screen views of the text). It’s possible to mark pages with a virtual dog-ear; the application even saves your dog-ear so you can jump to the marked page later.

One of the most useful features of the iPhone and iPod Touch app, however, will be evident only to those who already use a Kindle. The app lets users sync their iPhones and iPods with their Kindle wirelessly. So, if you’ve read 30 pages on your commute using your iPhone, your Kindle at home will turn on to your most recently read page.