I think part of the "what do I do with this" factor for the iPad was that Apple (and other companies still to this day) were so hell bent on making everything smaller and more compact that releasing a larger product was marketing whiplash. Not to mention that smartphones were being pitched as this "do everything device" so why would you need anything else?

After you get over that marketing sugarcoating, it becomes pretty obvious what you'd use an iPad for. Internet and media consumption at a larger scale than your phone, easier on your eyes than a phone, but retains at least some of the lightweight smaller form factor that separates it from a regular laptop. Sure you didn't have the stick it in your pocket advantage of a phone or the full keyboard and computational power of a laptop, but there was this in-between that for a modest fee, you could have the conveniences if you can live with/ignore the sacrifices.