When iPod shuffle it set to shuffle mode it will play all the audio files on iPod shuffle that are not audiobooks. To play an audiobook that is on iPod shuffle, set the switch on iPod shuffle to play in order. This way the audiobook will play in the correct order.
iPod shuffle allows you to bookmark audio books purchased from Audible.com (files with a .aa extension) and the iTunes Music Store (files with a .M4B extension). If you stop or pause one of these spoken word files, iPod shuffle will automatically bookmark that spot. The next time you play that file, it will start playing from the bookmarked spot.
Bookmarks sync to and from iTunes, meaning you can listen to an audio book on iPod shuffle or in iTunes (on the computer that's synced with iPod shuffle) from where you last stopped listening. The bookmarked spot that is further along, whether in iPod shuffle or iTunes, becomes the effective bookmark.
Bookmarks are not available for audio books or spoken word files in any other file format (such as MP3) than the two formats mentioned.
This is very cool... It makes sense as well, since the Shuffle supports Audible books. However, I must have done something wrong as this didn't work for me the first time I tried listening to Dirk Gently on the way home the other night. I ended up having to fast forward for a long time to get to the place I left off. I'll have to try it again, as I must have not "paused" it, but maybe just shut the Shuffle off instead.
Now - whatever flag that is set for iTunes to determine that a file is an audiobook needs to be included into Podcast files now, no? That way they'd be at the beginning of the device *and* they'd be navigable.
Update: From my comments I've learned this is what the .m4b file extentions does, which is why ITConversations has that option in addition to MP3s! I couldn't figure out why Doug bothered, now I know. :-D