I have recently got some audiobook CDs and have been looking for the best way to convert them for use with iPods. iTunes (Apple) have defined a special format for Audiobooks, it is the *.m4b format. It is really just the m4a format but with last a for audio changed to b for books. This Format uses AAC, quite superior compared to the mp3 codec but not as portable.
When imported the m4b format should automatically be set to book-markable or remember position. When listening to music you normally want to start at the beginning of the song, when listening to a book you normally want to start from exactly the same position you left off.
I found the best method for me is to convert all CDs into Wave files, as the best tool available rencodes into the AAC format and you do not want to do lossy conversion more than once as the audio quality will degrade. Once you have got all your wave files together I recommend using Audiobook Builder ($10 paypal, then auto-email codes to you).
With Audio Book builder I normally change the genre to 'Audiobook', search amazon for an image of the book cover and have to add the year manually in itunes, itunes does then update the file.
[Note added 03/03/2010]
Audiobook Maker does not look like it is compatible with Snow Leopard
If you already have a bunch of MP3s this tool is free Audiobook Maker (only imports MP3s) and then converts to m4b, but you are doing conversion to mp3 then to aac so you get two types of conversion loss, probably do not notice with speech though.