Origin of the book.
The creator of the book is still unknown.
What the book is.
The book is a magical item, which appeared from the blue two times:
- found by Snow White (Mary Margaret) during the first curse: it is used to make Henry go through a difficult period (in which he was feeling unloved and without family)
- found by Snow White during the second curse: it is used to make Henry believe again in magic
What the book does.
Notice that in both the times the book reveals itself to be the key in making people believe again in magic:
- during the first curse, when Emma touches it she starts believing in magic
- during the second curse, when Henry touches it the fake memories given by Regina go away and he remembers everything
and believing in magic is an essential ingredient in breaking the curse:
- Emma believes in magic, and thus she becomes committed in breaking the curse
- Henry believes in magic, the old memories about his family and his story in Storybrooke come back, and thus Regina (by kissing him and demonstrating true love) breaks the curse
Thus, it seems that the book have some magical properties that could be useful in breaking the curse.
Still, I am not convinced of the fact that it is an ingredient of the curse. It seems to be more a collector of the story of the characters that were lived in other worlds that are not ours (i.e., the Enchanted Forest in particular).
Indeed, when the curse is over, the book is still in Storybrooke, and once Emma and Hook travel back in time, they modify the past and consequently change the content of the book (see Princess Leia and Prince Charles appearing in it).
This is somehow inconsistent with the fact that Pinocchio (August) needed to add his own story to the book, since it was not there. A possible explanation for this could be the fact that that story was not finished yet, and thus the book did not collect it.
Moreover, it is still not so clear how it decides to appear. In fact, by now only Snow White was able to make it appear in both the times it was needed. An evidence of this is that both Emma and Snow White were looking for it in a box during the second curse, but it only appeared when Snow White started looking.
Edit: Fourth season
This season provides the key for understanding which is the author of the book.
The author is a job passed by for generations. An author has the task of reporting any story that happens in magical worlds (e.g., the Enchanted Forest) in the book. However, the last author (which was imprisoned in the book itself by the sorcerer's apprentice) began to alter stories, so as to write himself the happy endings for the characters he liked.