Banaras: City of Light by Diana L. Eck — The definitive scholarly work on Varanasi's religious geography: the ghats, the temples, the mythology, and the pilgrimage traditions. Written accessibly enough for non-academics, it reveals the city's extraordinary layers of meaning.
The Autobiography of an Unknown Indian by Nirad C. Chaudhuri — Not specifically about Varanasi, but essential for understanding the Bengali Hindu worldview that makes the city what it is. Chaudhuri's account of a Hindu intellectual life in early 20th-century India gives deep context.
Ganga: The Many Pasts of a River by Sudipta Sen — A history of the Ganges and the civilizations that have grown on its banks. Thoughtful and well-researched; puts Varanasi in a geographical and historical context that transforms the experience of being here.
Holy Cow! by Sarah Macdonald — A light, funny account of an Australian journalist's years in India, with vivid sections on Varanasi. A good read for first-time visitors to the Subcontinent, if not a deep one.