You have to remember that there really are plenty of people who are not tech-savvy, nor do they want to be, so they're looking for non-tech explanations. You don't tell these people how cellphone towers work... you just tell 'em it works like their phone, but you can use it anywhere.
I usually start by explaining what an e-book is... that is, a book turned into an electronic file (like a PDF or an MP3 file), that can be read on a computer and similar devices. Then I say that an e-book reader is a dedicated device optimized for reading e-books, portable, usually with a superior screen, and capable of carrying hundreds of books in its memory.
I pause there, to look for signs that their eyes are glazing over. If so, I stop there.
If not: I add that there are multiple brands of readers, and multiple e-book formats, and that they are not always compatible, so your choice of reader may be determined by who you want to buy e-books from. I also add that devices like PDAs and cellphones can also read e-books, and can often read multiple formats, so they might be an option if they want to read e-books... especially if they already have one, and they are okay with small screens.
Another eye-glaze check here. (This is where my wife's eyes go milky-white, for example.)
If there is still no glaze, I ask a bit about what they like, get an idea of how much tech they're comfortable with, and get into individual brands. If they seem uncomfortable, I go no further than telling them about the Kindle and Sony readers. And when I get tired of talking, I recommend MR to them.
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