Not sure about the K3, but on my Kindle Touch, this is the same. To make the Kindle recognize the mp3 as an audiobook, you have to put it in the "audible" folder in the root directory. When you do this, it appears on your home screen as a "music" file, and remember your place when you pause it. Note: you can't do other things on the Kindle while listening to an audiobook.
Well, at least on the KT, anyways.
