I read somewhere on the Internet (which is always true, right? ) that this does apply to authors and they can define books to be directly competing on their own judgement. Additionally, I was under the impression that they could stop sale of your book over this.
I believe that this is in direct response to people using Amazon reviews as a way to advertise their authorship of a book. In "Making a Killing on Kindle" they even have a section on how to use Amazon reviews to advertise your books on the pages of others. Maybe the stories I read originally were cracking down on this particular instance of competition, but there are a lot of "bad eggs" out there that think it makes sense to trash the works of others and advertise their own books in the process. I can understand (and envision in the future) applying the ToS sledgehammer overly liberally in this situation and don't want to get sledged.
Tangentially, I've read that if you do Amazon reviews, then Amazon owns your reviews and they must be substantially different from reviews by you appearing elsewhere (such as Goodreads and blogs). I produce two different versions of my reviews when doing Amazon reviews as a response to this policy.
If you're uncomfortable doing reviews, there's no reason for you to do reviews.
Personally, I don't think there's any reason to stop. If you write solid reviews that have merit, I do not feel like Amazon is going to have any reason to act against you. I think that, if they did act against you, public opinion would be on your side, not theirs (again, if you're not abusing the system).
The advice given in that chapter of Make a Killing on Kindle should NOT be followed. Every review on the book says that Amazon takes a very hard stance against doing what he suggests.
I also agree with Steerpike that Amazon does not "own" my reviews. They have the right to use your review. That does not mean you give up your right to use it yourself.
Again, though, if you feel uncomfortable with doing something, the solution is simple - don't do it. You're probably not going to have a lot of luck, however, convincing the rest of us that your opinion is the correct one.