JPEG is currently the only image format that is natively accepted by the app, but you can load TIFF and other RAW formats via iTunes and Apple will convert this into a form that Foliobook can access.
PNG is used in one place in the app, for the transparent LOGO. Because of the way iTunes converts files to internal JPEG, transparency is lost unless a PNG is loaded via the file sharing tab in iTunes. There is a separate note on the logo file here.
iPad 1 recommended image size 1024x768
Larger may be possible if you want to zoom, however be aware of the limited RAM in the iPad 1 and swap your large images for the recommended size if you the app starts to behave erratically.
iPad 2 recommended image size 2048x1536
Larger may be possible, but as with the iPad 1 your milage may vary
iPad 3 and all subsequent iPads (4, Air, Air v2) minimum recommended image size 2048x1536
That size is the minimum for the retina screen iPads. You can load quite large images and zoom into them. We have successfully tried 22 megapixel images. However this could well make some operations a bit slow and jerky. If you hit problems, load smaller images.
Note that dpi/ppi will not have any effect on how images look on the iPad