honestly, there are no places were you can get free books, you could go to the library, but that still has a cost.
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the main setting is in Stonybrook, Connecticutt.
You can get free clothes in club penguin whenever there is a party. Just look for a box, bin, or crate that says FREE! on it and then walk up to the box, bin, or crate and you will receive a free item! Also, you can get free items from the Treasure Chest after you purchase a Club Penguin toy that comes with a code. The Treasure Chest is a series of books that has some of Club Penguin's best clothing that you can get for FREE if you buy a Club Penguin toy.
i now where you can get to read the proper books ,you can read a bit of some books onhttp://straw000.wordpress.com/2008/11/15/36-free-sure-fire-club-penguin-book-unlock-codes/ and it tells you the codes and much much more