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There are so many formats because each has different DRM (digital rights management), which locks readers into a single format. Without DRM, it would be legal in many places (including the US) to convert between formats, and there would be little reason for multiple formats anyway (because no-one could make money from a new format).
The "best" depends on the criteria used. Technically, LIT is probably the best of the widely used formats. It is based on the OEB format, as is MOBI but MOBI looses some information in making the files a bit easier to process on 10 year old devices. The new ePub format is the successor to OEB, and is certainly an improvement over OEB. However, of the reader software vendors only Adobe is fully supporting ePub and it isn't widely available yet (as ebooks or on reading devices). If "best" means most ebooks available, MOBI is very common but Secure Adobe (usually PDFs, but some now ePub) can sometimes be the only available format.
For simple ebooks (primarily text, with a cover image) there is little to choose between the formats. For ebooks that need care in laying them out on the screen, particularly on small screens, then ePub has the most potential although the potential has not yet been fully realized.
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