She smiled, knowing she'd found new favorite book.
Meaning: This sentence is describing how the girl felt about the book she had just read.
Choice of Words: Smiled means to make a facial expression that shows happiness or amusement. Knowing means to be aware of something or to understand something. Found means to come across or discover something. Favorite means the one that is liked the most. Book means a written or printed work consisting of pages glued or sewn together along one side and bound in covers. So, "She smiled, knowing she'd found new favorite book" means that the girl smiled because she knew that she had found a new book that she liked the most.
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Related Expressions