Touching and pressing a word in the word(s)/phrase that you want to highlight, and then removing your finger from the screen should give you the options for Dictionary / Highlight / Note / Search - I'm not sure whether that applies to PDFs as well as books. From the iBooks faq (http://support.apple.com/kb/HT4059) :
iBooks includes built-in Highlight and Note features. Highlight any word or passage of text within a book. You can also create a Note from your highlighted selection. Review your Highlights and Notes by tapping the Table of Contents button and then tapping Bookmarks. Highlights and Notes appear in their own section under Bookmarks.
Edited : just tried a PDF copied from another app and it doesn't seem to let me highlight or add notes to it
Message was edited by: King_Penguin
From the iPad User Guide, Chapter 19: iBooks (available at http://manuals.info.apple.com/en_US/ipad_2_user_guide.pdf):
Add, remove, or edit a highlight: Touch and hold any word until it’s selected. Use the grab points to adjust the selection, then tap Highlight. To remove a highlight, tap the highlighted text, then tap Remove Highlight. To change the color of a highlight, tap the highlighted text, then tap Colors and select a color from the menu.
Add, view, or remove a note: Touch and hold any word until it’s selected. Use the grab points to adjust the selection, then tap Note. Type some text, then tap Done. To view a note, tap the indicator in the margin near the highlighted text. To remove a note, tap the highlighted text, then choose Delete Note. To change the color of a note, tap the highlighted text, then tap Colors and select a color from the menu.