Bitly is the URL shortener that I have been using for years. It's simple to use, especially if you use the bookmarklet, allows you to customize URLs, and offers good statistics about use of your links. I like Bitly so much that I consider it one of the three browser tools all teachers should try. Yesterday, Bitly introduced a slew of new options.
Bitly now offers a social bookmarking component that they are calling Bitmarks. Bitmarks are bookmarks that you save in your Bitly account. Your Bitmarks can be shared publicly or kept privately. Bitly offers an option for bundling bookmarks into one package that you can share with just one link. Bitly bundles are now collaborative too.
For iPhone users, Bitly has launched a new app that you can use to create and access bookmarks on the go.
Applications for Education
Bitly itself provides a good way to shorten links into URLs that are easy to distribute to students. Using the bundles option is a good way to direct students to a set of links that you want them to access for an assignment in your course.