Having tried a Nexus 7 the other day the form factor is spot on. Great for reading, quick surfing, videos and games. The 7" form factor might be more ideal for consuming content rather than creating.
Reading especially is the killer-feature on the 7" form factor, using one hand and is so much more comfortable than the bigger iPad.
I see the iPad more a general 'laptop-killer' (more most people - I use that phrase loosely) while the smaller one is aimed more at the content consumer (kindle people etc). But like all iOS devices there will be overlap.