This is the first in a series of book reviews. I'll start of with one of the few useful books I've read.
"A Theory of Fun for Game Design" (Raph Koster).
Everyone involved in game design -- students, teachers, and professionals -- should read this. It's very short, uses a large font, and every other page is a cartoon; you can read through it in an afternoon. It makes the case that learning is the source of fun in games, and that game designers are just a specialized type of educator.
This book is fairly light in content; it's not about how to design games, per se, but about what game design actually is. Probably the most important thing you can get from this book is a way to describe your field to friends and family who aren't gamers (particularly those with the attitude of "why are you wasting your life with those games, instead of studying something real?").
Students: Due to its brevity and tight focus, this is one of the few books that is easy for a student to just pick up and read on their own. If you're broke, you can always just read the thing in your local Borders some random afternoon.
Instructors: I think it would be tough to use as an actual textbook in class; it's too short. For classes where this book would be appropriate, just read it yourself and prepare a lecture that summarizes the key points. And then encourage students to read the entire book on their own time, if they find the topic interesting. Another option would be to require it as one of several short textbooks, and include assigned reading (with a summary report to be handed in) as part of a larger class -- either mandatory, or for extra credit.
Professionals: Pretty much every game designer I know personally has already read this book. If you haven't, you probably should, if only because it comes up in conversation from time to time. But if you work with other designers, they were probably bugging you about reading this long before I made this post.