We do not understand. The only explanation is that people are broke and/or stingy. This cheapish something is neither a decent ebook reader, nor a real tablet. And it has a whole bunch of flaws.
Display: 7" is simply too small and too low-res, unless you focus on text like the original Kindles. The resolution is 1024x600, which already sucked on netbooks, because 600 pixels are not enough to show many dialog windows or websites without constant scrolling. And at 169 dots per inch it is not crisp enough for small print, making it far inferior to the e-ink displays of the regular Kindles.
Connectivity: no 3G option so far, just wireless. Well, not everyone needs 3G, but not even having the option just sucks.
Storage: 8 Gigabyte. About 6 of them can actually be used. That is 2-4 movies at HD resolution. Sorry guys, but you are 2 or 3 years late to impress anyone with that amount of memory... and of course it can not be expanded with memory cards, but you are forced to rely on the Amazon cloud service. Storing your stuff on some big companies servers who-knows-where is never a great idea, and for non-Amazon content it is not even free. Plus you can not access your stuff when you are somewhere without WIFI coverage (yeah, that 3G would have been nice, eh?)
Add a weakish processor and mediocre battery life, and you know why this unit comes at 199 bucks...
199 wasted bucks, we would say.
You want a decent tablet?
Stick with Apple's iPad or the Asus Eee Transformer Prime TF201. Yes, those are more expensive.
But the Kindle Fire does not provide "more for less", as Amazon boldly claimed, but it is just cheap.
You want an ebook reader for actual reading?
Stick with the non-Fire Kindle product line. Kindle Touch 3G
and his brethren are good at what they do, really good.
Want the perfect all-in-one solution?
You will have to wait a little. Even the better pads/tablets have a resolution of 1200x800 or similar these days. Which is pretty decent for most uses - except reading. Plus their displays all suck in direct sunlight.
The next generation (iPad 3 etc.) is expected to have displays that have about the same pixel density as the "Retina Display" in iPhone and iPod Touch, where the eye can't distinguish the pixels anymore even when looking very closely. 10 inch displays at that pixel density would be appropriate for reading books and magazines without hurting your eyes.
Until then we recommend buying an "old fashioned" Kindle with e-ink display for reading purposes - cheaper, better, and you can still use it in a couple of years in addition to the shiny new tablet you purchase next year... ;-)
P.S.: Prefer to read our extensive review in German: Kindle Fire Review auf Deutsch