This app caught my eye today. While it won't replace Skitch as a quick way to illustrate something, the video and audio might turn the trick for a more complicated project, while not quite resorting to the equipment needed to do a full on instruction video.
Doodlecast Pro will let you record audio while drawing. You can do this over one of their included backgrounds or use your own photo or screenshot. The tools are limited, but adequate. The pointer tools should come in especially handy. If you combined it with a basic video editing app (to cut pauses, splice the best of several takes, and maybe redo the voice over) you could probably get some very nice results.
If you've ever visited one of my favorite sites, KhanAcademy (also an iPhone app), it is easy to see how teachers could use this as a cheap alternative to whatever it is that they are already using.
Anyway, here is my really, really, really horrible demo. Try to imagine the possibilities if the person using the app had talent, or at least some content worth watching.
By the way, this video is the Medium (lowest) quality setting.
Edit: I used iMove to make some very slight improvements: cut some wait times, cut a few vocal stutters, and voiceovered the last part. If nothing else, it is slightly shorter now.