Picnik

This is a collage I made in about 15 minutes using Picnik.
Picnik is a photo editing suite which offers free access to a basic account and subscription for access to more complex tools.
It would be a great tool to use in the classroom as a digital scrapbooking tool, and as projects can be saved as jpg files, the possibilites for using your projects with other software packages such as movie-maker, powerpoint or in a virtual classroom are endless.
Whilst the process of producing the collages may be a little beyond children in the early years of school without sufficient scaffolding such as using in small groups, older children would no doubt learn how to use the software fairly quickly.
The software also provides tools to edit photographs such as converting to black and white photos and using sepia which would both be great for projects that focus on the past.

Added 18/08/2010
During a conversation with a colleague today I was made aware of the fact that Picnik is an online only application. This of course severely limits its usability within the classroom, given that many internet sites are blocked, not to mention the often mindwrenchingly slow speed of internet connections within schools.
Whilst this does not necessarily mean that this tool cannot be used in the classroom at all, the circumstances of its use will be quite restrictive.