The unveiling of the iPad Mini with its 7.9-inch display has many pundits referring to Steve Job's talking about the wisdom of making a tablet with a screen smaller than the iPad's 10-inch display (for example this article in the Register). It's true that the iPad Mini is a "gap filler" aimed in particular at the Amazon Kindle Fire market. Apple seem to have reasoned, "why shouldn't we make a mini tablet? We make iPod's and MacBooks in all sort of different sizes and specs."
Yes, it makes no sense logically - if I want a device that fits in my pocket I've got an iPhone; if I want a device that fits in my bag I've got an iPad. Why would I want something in between? But it seems some people do want a device this size and Apple aren't about to gift this market segment to Amazon and Google. I expect the iPad Mini will sell well, despite being technically underwhelming. It will certainly appeal to people who are already committed to the Apple ecosystem, and will make a good eBook reader being about the size of a small paperback.