K3 has a better screen and is smaller. It hold more books (3500 compared to the K2's 1500) and has a longer battery life (1 month compared to 2 weeks). The K3 also comes in graphite, where as the K2 only comes in white. The K2 does not have wifi capability just the 3G connection.
That said, other than the screen resolution, I prefer my K2 over my daughter's K3.