I've been fascinated by these meta-books for some time, ever since I first encountered the Necronomicon in Lovecraft's stories. Borges has practically a whole Library of imaginary books in his stories which inspired me to add a few imaginary tomes to my novel. I think the appeal of this literary device is the ability to give the reader a bit of exposition that doesn't feel like exposition. There's nothing worse then when charactersin a book start explaining things to each other for the obvious benefit of the reader because no matter how well it is written it still feels like at the end the character should turn to the reader and say, "Did you get all that? Because I'm not going over it again."
Another use of the meta-book idea is to give a sort of cracked mirror view of the story itself. I use this in "The Tragic Circus" in which there is a book purchased by Simon entitled "The Tragic Circus" which is about a wolf headed boy who joins the circus and has all sorts of wonderful adventures before dieing in a horrible fire. It alows me to make foreshadows and illistrate some of the themes in, what I think is a clever way. One of the best uses of this is by Kurt Vonnegut in Breakfast of Champions, in which Kilgore Trout (who is one of the greatest, most cranky imaginary authors ever) coments on everything through some really bizare Science Fiction stories, all of which for some reason are published in porno magazines.
Speaking of porn, over at suicidegirls.com they have some really amazing short stories by Barry Yourgrau, and others and interviews with Ewan MacGregor, Johnen Vasquez and other fun people. Also, they have nauty pictures of cute Goth girls. What could be better?