There's a huge difference between formatting a manuscript for a print book, and doing so for an e-reader platform. Though I don't claim to be an expert on this matter, I'd like to share some insights. Most of this I learned from the Kindle book Smashwords' Style Guide by Mark Coker, which you can find for free in the Kindle store. It was a really big help and easy to use, even including screen shots of particular important points. Keep in mind, however, this style guide talks about Microsoft Word no later than 2007, so if you're using a newer version, some features may be different.
So, first things first. Turn off ALL autoformatting features in your word processor. It will only cause you headaches down the line (and possibly show up on some devices with wildly different font styles or sizes that you couldn't see in your original manuscript on the screen). There's even a method to clear any existing formatting which can be particularly helpful. See the style guide and you'll see what I mean.
Next, you need to remove any page breaks you may have inserted. In a print version, you need these to show where a new chapter (or page if you're OCD about it) will begin. Using these can reduce frustration when uploading for print at places like CreateSpace. But in an e-book, you don't need to have so much empty space, as it will sometimes show up as a blank page or two. You really only need a line or two to separate the end of the last chapter from the beginning of the next.
You'll also want to eliminate the tabs at the beginning of new paragraphs, and embed this in your formatting instead. The style guide goes step-by-step through this process, so that you'll automatically have a "first line indent" any time you hit the return key. If, for some reason, you don't want the next line to have an indent, you can hit enter and shift together; you'll get a line return but no indentation. To help you see these, turn on the hide/show formatting tab (looks like the symbol for a paragraph, a backwards P with a line through it). This will show you paragraph returns, bullets, and tabs (a horizontal arrow going from left to right--->).
Finally, you'll want to hyperlink to your chapters from a table of contents, EVEN for a fiction story. This allows the reader to bounce back and forth just like they might in a paper book. Smashwords' style guide says NOT to use an automatic table of contents, as this doesn't turn out well with their conversion software. Instead, Mr. Coker walks you through doing it yourself, and it's really not so hard.
A few other things to keep in mind. Some font styles and types don't translate well through the wide spectrum of e-reader platforms. What might look awesome on a Nook looks terrible on Kindle (or vice versa). So stick with the more common styles like NewTimesRoman or Courier. And your font size shoukd be around 10 or 12pt; it doesn't matter much since the reader can adjust the font size on their device. Also, symbols don't tend to translate well. © might turn out being just a box on some devices! So spell out 'copyright' instead, it means the same thing. The adage "keep it simple, stupid" really does apply!
Thanks to Mark Coker for writing such a wonderful guide, one that's easy even for computer "dummies" like me to understand! The screenshots help a bunch! And thank you, Smashwords, for providing a wonderful service for indie authors! You'll always be my FIRST publisher! Check out Smashwords here if you're interested in publishing with them.