For normal paragraphs, use <p></p>. Mobipocket displays them indented and with a little vertical space, but that should be customizable in the viewer (even if often it is not). It can be overriden, anyway, with (in mobipocket pseudo-HTML) <p width=0 height=0>.
Use <div></div> for other blocks, such as epitaphs or newspaper titles displayed in the text.
In XHTML (and maybe in HTML, I don't know), <p> elements cannot contain other block elements (like <p>, <div>, <blockquote>), but <div> can.
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