In my opinion, it's the "lightweight portable" market. People who want/need a computer with them wherever they go, butwho don't need it to be a full-powered or -featured machine, preferring battery life and ease of use instead.
I think Apple succeeded where others failed in the tablet market because they didn't try to make a "desktop replacement" but focused on the things that mobile users are really after -- they are generally content consumers, not content creators.
Technology also helps. The iPad's graphics are stunning, all the more so when you consider its battery life. Apple's general push toward the "cloud" model means you can get by with less "stuff" stored on the machine, so flash memory replaces platter drives, making it lighter, quieter, more reliable, and using less power. Network technology has advanced that accessing content over wireless or 3G is good enough so that you really don't need a whole lot stored on the device.
Now, personally, I have an iPhone and see little need for an iPad for myself (though I can imagine a lot of practical uses for people in other fields, and, of course, it would be a neat toy if I could afford it). My next computer purchase is probably going to be a MacBook Air because I am a content creator while traveling, more so than I am a consumer.
I think I understand the market better now