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There's an explanation in Mark Forsyth's excellent The Etymologicon claiming it's based on the size of sheepskin.

http://books.google.co.uk/books?id=KUZxTvay3PMC&lpg=PP1&... (I can't seem to get a direct link to the page, but just click page).

Something interesting is that cultures with different sources of literary traditions have slightly different sizes and aspect ratios for what is considered a "normal" book size and shape. It doesn't vary too much, there are obvious physical constraints on how large or small or awkward reading technology can be, but it's different enough that it's noticable.

Paperbacks become widespread after WWII as a cheap and portable alternative to hardcovers, the size you're used to now is a legacy of that.