You can get free books in LRF format from
www.manybooks.com, you can get free books from the downloads section of this forum (many are the same as available at manybooks, but formated more carefully), you can get free books at Munseys, you can get free books at SilkPagoda.
You can buy newer books in LRF format from Fictionwise (their MultiFormat books are available in LRF format, but their DRM books are locked into other formats which aren't Sony compatible, although you can buy LIT format books and follow procedures you can find on the net to remove the DRM and then convert using Calibre.
You can buy newer books in LRF format from BAEN.
Calibre is a wonderful program written by Kovid Goyal and downloadable for you to convert your own documents, or ones you can get for free at Project Gutenberg and elsewhere, into LRF format.
You can find out more about Calibre by going to the Content section of this forum.
Mobipocket format books won't work on the Sony Reader without conversion -- in the Content section of this forum are discussions on how to convert from Mobipocket format to LRF format.
You really should check out the Content section of this forum and read the sticky messages there to learn more. There is also a Wiki section of this forum where a lot of this is explained.