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It may not be a mobile version of Adobe Illustrator, but Skitch can handle basic image annotations and rough sketches exceptionally well. It's easy to learn, its tools work well, and because it's part of the growing Evernote family of multiplatform apps, it can sync across all of your devices.
Getting started with Skitch is simple. From the Home screen, you can open up a blank canvas, import an image from your gallery, or take a new photo with your mobile device's camera. You can even pull up and add annotations directly onto a Web page or a Google Map (Map view, not Satellite). The choices here are impressive.
The editor interface works well, with its sleek toolbar and tons of white space to accommodate as large a canvas as possible.