Cracked nipples is really bothering my wife who is feeding our1 week old baby. Extremely painful. How to get out of it?

Shield and lotion. A nipple shield and a lanolin-based lotion might be just the ticket. The nipple shield is a small, silicone shield worn over the nipple during breast feeding to protect it. The lanolin-based lotion will help to protect and restore the skin around the nipple and areola. She should be able to find both at any good store that sells stuff for babies and moms.
Change technique &.. This is a common problem in new moms. The simplest immediate relief is to take a lanolin-based product like lansinoh. But the most important intervention is proper nursing technique- what should be simple & natural is surprisingly complex! see http://www.Breastfeedingbasics.Com/articles/sore-nipples for a good overview. It might be wise to consult a lactation consultant- see my comment for more.