Zopler is an interesting free service for collaboratively writing stories. The basic idea behind Zopler is to enable the creation of community-crafted stories. Here's how it works; as a member of Zopler you can start a story with as little as one sentence or as much as 1000 words. Your story starter can include images too. Then you can make your story starter public or private. If you make it public, any Zopler member can add to it. If you make it private, only those people that you approve can add to your story. Contributions to stories can be voted up or down by other contributors to the same story.
The video below provides a short overview of Zopler.
Applications for Education
Zopler could be good way for students to collaborate on creative stories. You might have students write a collaborative story about a shared event like a field trip so that they can all get their version of events into one piece. One word of caution, if you use this with students make sure that the stories are marked as private so that random contributors don't post inappropriate comments on their stories.