Before you proceed with digital publishing for a children's book, you need to consider first what platforms (retailers) you intend to sell upon; then, you need to decide whether you're going to publish that kids' book as a "fixed format" book or a regular, reflowable ePUB and MOBI title. There are important considerations for both options.
"Fixed fomat" books are ebooks that can display two-page spreads, or pages of illustrations that have text on top of the illustrations. Below are two examples of fixed-format books. One is from "The Big Galoot," by Shadoe Stevens, on the iBooks application (Apple); the lovely pen-and-ink "Fox and the Fawn" is shown on a Kindle Fire device, with pop-up text boxes (also called, "region magnification," but "pop-up text" just sounds cooler!)
Now, the upside is that these books will look exactly, or "as exactly as possible" like the original print layout. The downside is that they a) are extremely expensive, and, b) are limited to use on the platform for which they are created.
What this means is that if you have a company make a Kindle Fixed-format Kids' book, it can't be read on any other e-reading device. An Apple Fixed-format book for iBooks can't be read on a Nook. And a Nook Fixed-Format book can't be read on anything but a NookColor tablet, in the special NookKids' platform. (And, note: to publish a NookKids' book, you have to be approved as a NookKids' publisher, by Barnes & Noble, or use an Aggregator/Distributor that is already approved.) An Amazon MOBI made this way only works on those devices that have "K8" formatting--basically, the Kindle Fire Tablet and certain Droid Tablets.
We at Booknook.biz have extensive experience in making these types of Kids' books in fixed-format, including books with embedded video, audio, and even animation (the latter on the iBooks platform only (and to a lesser extent, the NookKids' platform); audio is only available to self-publishers for iBooks and Nook at this time).
An alternative to this approach, if you have simple images with text on opposing pages, is to create a reflowable ePUB and MOBI format (please see our basic formats article here on the Knowledgebase: http://j.mp/SRe0eg if you don't know which formats work on which devices) . While this can mean that images and text may become separated while someone is reading the book, it is significantly less expensive and has the added advantage of portability. An ePUB made this way, in other words, works for iBooks, Nook, Sony, and virtually every other ePUB-reading device. A MOBI file made this way will work on all Amazon devices. Two examples of books made as reflowable ePUBs or MOBI's are shown below; "Sharon and Eleanor's Escape" by Connie Pontius (Geese image) and "Emerald Green Runner" by Andrew Kay and Romy Dingle (on iBooks, with a tree in the image).
Now, on either of these last two books, when a reader changes the font size of the book, or changes the orientation (you can read both iBooks or the Kindle Fire in horizontal, or landscape, view), the relationship between the images and the text that you see here will change. For example, in Sharon and Eleanor, it's highly likely that simply enlarging the text would move the paragraph that starts, "This day began like any other..." to the next "page," meaning that a reader would have to click to the next page to read the text.
Some authors don't want this--they want their books to have text and images "married," as you see on The Big Galoot or The Fox and the Fawn, above. If, however, your book is sparsely illustrated, or is predominantly story with illustrations, using reflowable eBooks is a far more flexible and affordable way to go. But if you have a storyline this is predominantly illustrations with very sparse text, then something like Fergus and Lady Jane, from the wonderful Australian "Fergus the Ferry" series, shown below in Kindle Fire Tablet, is probably a better choice.
Either way--we here at Booknook.biz can help you with your Kids Books.