I create a lot of documentation and tutorials with Google Docs (it's the best way to replace PDFs). Of course, adding screenshots is always an important part of any good documentation. For that, my application of choice is Skitch.
Skitch (http://evernote.com/skitch/) is a free service/application provided by Evernote. It's easy to use, allows you to store your files within your Evernote account, provides easy sharing and has some great mark-up tools. What makes Skitch a winner for me is the ease with which I can drag my marked up screen shot to a Google Doc. I just click on the icon at the bottom and drag it onto my document. Quick and easy!
Here it is in action: