I've explored and tried out several painting apps on the iPads in school over the past year but the best one has clearly been Drawing Pad. It has just the right amount of tools for children to use and presents them using an realistic-looking (and therefore intuitive-to-use) graphical interface.
Children can use the touch of their finger to make marks with virtual: pencils, colouring pencils, felt tips, poster paints, wax crayons and chalk. Different paper types, stamps and picture stickers are also available. The most recent update to the app now allow text labels to be added (great for putting names onto work!) and custom brush styles/colours to be chosen, if desired.
I've used the app with great success to a wide age range of children and they've all loved the creative possibilities it offers and been able to independently improve their digital painting skills to a level appropriate to them.
Lots of painting apps are either too simple and don't offer many ways for children to really develop their skills or are too complicated and have interfaces which aren't really child-friendly - Drawing Pad strikes the right balance in my opinion and I highly recommend you download it so you can share it with your class!