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I have zero experience with linguistics. Some friends told me that my question is one in linguistic, so I decided to give a shot here.

Question

While designing a dictionary, people collect words into it. Naively, each word will occupy an entry, but that is not an efficient way. Instead, we should combine words like 'book' and 'books' into an entry, and probably should name that entry 'book' because the word 'book' is more "reduced" than the work 'books'.

In this case, I would like to say that the 'canonical form' of the word 'books' is 'book'. What is the terminology in linguistics (if any) that is similar to my 'canonical form'? And how do people deal with this dictionary-designing problem? Any related terms will also be appreciated. Thank you in advance!

The term you are looking for is lemma.

And yes, indeed most linguists will treat book and books as the same "word" (in the sense of word=lemma) in a dictionary, which is why the term "lemma" is sometimes also referred to as the dictionary form of a word. This applies not only when writing a literal dictionary, but is also the common understanding of the term "word" in theoretical linguistics: "books" and "book" are generally regarded as belonging to the same lexicon entry, where "lexicon" here means not a physical lexicon you keep in your bookshelf, but an abstract idea of a language's word inventory that speakers have intuitions about.

I don't know exactly what you'd like to know more about how this problem is dealt with; basically, forms of a word which are mere grammatical variants (such as singular vs. plural in the case of nouns, present vs. past tense in the case of verbs, ...) but carry the same core meaning will be treated as the same "word" (in the sense of lemma), while two words of the same form but with a different meaning (such as the word(s) "bow": to bend down vs. something to shoot an arrow with - both words happen to have the same form, but it makes sense to treat them as different words) are treated as belonging to different lemmas. More difficult cases include phenomena like "parliament" (this could have the sense of building or an institution - is this still in some way the same meaning or should these two senses of "parliament" be treated as different entries in a lexicon?), but this is then more a question of where to draw the line between different "meanings", while "lemma" in the sense of "an abstraction over all grammatical variants of a word" is relatively clear-cut.

BTW: The process of computing the lemma form for a given word (e.g. books -> book), often used in the context of computational linguistics, is called lemmatization.