Paint.Net is the best free photo and image editor that we have ever used. I recommend it to everybody who wants to go the next step in their photo editing, but doesn't want to throw away hundreds of dollars on Photoshop.  Photoshop does have many features that Paint.net lacks, namely support of the ubiquitous PSD format that is essential when using Paint.net for commercial reasons and exchanging files with other people in the industry. However if you are not doing that, you will find Paint.net a worthy and completely free replacement. This surprisingly powerful image editing and manipulation tool includes unlimited undo, special effects, and even the ability to work in layers. This may be the best actual piece of freeware development that we have ever seen. The developers update regularly, bug fixes are handled reliably and quickly and features are regularly added and improved, all while keeping the footprint incredibly light.

-ComputerNutz.com

Some of the listed features from the Paint.net site:

Simple, intuitive, and innovative user interface
Every feature and user interface element was designed to be immediately intuitive and quickly learnable without assistance.

Layers
Usually only found on expensive or complicated professional software. Layers form the basis for a rich image composition experience. You may think of them as a stack of transparency slides that, when viewed together at the same time, form one image

Active Online Community
Paint.NET has an online forum with a friendly, passionate, and ever-expanding community to help you learn and grow.

Frequently Updated
Updates usually come about every 4 to 6 weeks, and contain new features, performance improvements, and bug fixes. Upgrading to the latest version is very simple, requiring only two clicks of the mouse

Special Effects
Many special effects are included for enhancing and perfecting your images. Everything from blurring, sharpening, red-eye removal, distortion, noise, and embossing are included. Also included is our unique 3D Rotate/Zoom effect that makes it very easy to add perspective and tilting.

Powerful Tools
Paint.NET includes simple tools for drawing shapes, including an easy-to-use curve tool for drawing splines or Bezier curves. The Gradient tool, new for 3.0, has been cited as an innovative improvement over similar tools provided by other software. The facilities for creating and working with selections is powerful, yet still simple enough to be picked up quickly. Other powerful tools include the Magic Wand for selecting regions of similar color, and the Clone Stamp for copying or erasing portions of an image. There is also a simple text editor, a tool for zooming, and a Recolor tool.

Unlimited History
Mistakes are a thing of the past and are easily cleaned up with Paint.net's unlimited history feature.

Open Source and Free