I use Blogger for my classroom blogs, but there are a variety of blogging services available including WordPress and EduBlogs. (These are all free or have free versions).
I teach physics, and as such I do not use the blogs as writing assignments. I use them as a way to communicate with my students, post assignments, and have them comment on assignments and submit their work. This helps to cut down on paper use also.
I post student assignments to the blog and the students go to the blog to get the assignment. I have all of my students subscribe to their classroom blog via email so that they receive a notification when something is posted. I post homework, classwork, study resources, links, and more for the students. Some assignments require the students to post comments to the blog and discuss each other's comments. Other assignments require them to complete a lab sheet or lab report. They can then submit that to me via Drop.io which I have a gadget for on my blog.
One example is a lab my AP Physics class is doing. They are doing an online, virtual optics lab. The instructions are posted on the blog and class site. They can download the lab sheet to their network drive and complete it using Word. They then submit it via Drop.io. This means that there is no paper generated. I then grade them using comments in Word and email them to the student.
A benefit to using the blog is that students who are absent can see what they are missing and I can post alternative make up work for them. I also use a lot less paper. I am lucky in the fact that I have 8 student computers in my room for the students to use. I also post reminders of upcoming due dates and test dates.
I haven't done a lot with having other classes from other schools interact with my students and their work yet, but it is something I am looking into. I know some teachers who have discussions on class topics on their blogs with classes from other schools.
I also have permanent links on the blog for their extra credit assignments and all of the different help websites I have found.
Blogs can also be used by students as online journals, writing notebooks, and discussion boards.
I have found blogs to be a great educational tool and resource. My students love the fact that they can look on the blog to see what they missed, what's coming up, find information and help, download handouts that they may have lost, communicate easily with me, and get updates when something new happens.