Reading with your little one is a great way to bond with them and expose them to new things. They understand a bit, but they understand most that you are there with them. Be silly - they understand silly pretty early on, and whether or not you're happy reading to them. Make it fun.
Sandra Boynton is a must; my favorites from her are:
Lamaze Books are great
And here are some other favorites
And to round out the list with some books for parents: