At last count there were over 4600 photo or camera related apps on the app store. Which is best is probably debatable and will change almost daily as new apps are introduced.
If you want to take photos with the on board camera and edit them all within the same app then have a look at Camera+
Abobe PS Express is a reasonable but not great free photo editor.
NIK Snapseed is probably as close to a Pro level app as you can currently get on the iPad and is a bargain for what they want for it
Filterstorm Pro and Photogene are two other well regarded apps.
For true pixel level editing I think Filterstorm is the best. Photogene is close behind it but Filterstorm's masking abilities make it the better choice imho.
For a relatively limited app but with excellent output, I recommened Snapseed - it's easy to use and you can achieve some great effects.
Also keep an eye out for Photoforge 2. It's iPhone only at the moment but due to go Universal very soon.
Just seen a tweet from the Filterstorm dev and it looks like layers are coming to that app in a 3.5 release! That would cement it's place as the top editor imho. Given that version 3.0 was released very recently, that update may be a few months away though.