Because competing devices have higher density displays. And high density allows for prettier, crisper, more natural graphics. iBooks are just the icing on the cake.

Why 960x640 precisely?

Because it makes things simple. Whether you have a bitmap or some procedural drawing (vector if you will) you can easily translate it into coordinates on the new screen - just multiply by 2. No need to worry about sub-pixel drawing and artifacts occurring as result of rounding errors.