For most children, teaching reading follows a similar pattern (and it starts earlier than you think.) First there is just the familiarity with print. Seeing it around, watching people use it, discovering that those marks mean something, learning that those marks can tell an interesting story. If a child is exposed to print in their environment and has been read to, they can usually tell which direction is right side up for most words, even if they can't read them. They get used to how the shapes look and they don't look right upside down. Once this familiarity is there, a child then wants to know what a letter is. They start learning each letter and the sound it makes. Then they need to start hearing those sounds in the words they use. First at the beginning, then the end, and finally the middle. If you can't sort out the individual sounds in a word there is no way you can sound a word out. Each step builds on another.
Once the letter sounds are learned and the idea that words contain individual sounds is absorbed, a child can start to sound out simple words. English is a rotten language to learn to read in. There are so many words which do their own thing; a beginning reader must learn quite a few sight words in order to read even simple books. (Think of words such as 'the' or 'said'. It's hard to tell a story without them, but you can't really sound them out.) Simple words move onto more complex ones which contain trickier rules (consonant blends... th, ch, sh..., the letter e at the end of a word, when two vowels go walking...). Words can be sounded out, but there are more steps to remember. And there are more sight words to recognize. This is where H. is right now. It is still a lot of work to remember all those different rules and then sound the words out. Often we have to read something a couple of times so she can get the words the first time and then the meaning the second.
Then somewhere in the midst of the step, something happens. The process becomes more automatic. Each and every word doesn't have to be sounded out every. single. time. A child will find himself just seeing a word and reading it without effort... and often surprising himself at first that he knew it without working. The harder rules don't need to be consciously remembered each time. It is still a bit of work, but a story can now be read and enjoyed. At this point, a child is just steps away from that magic moment when they can really read. This is where K. is. He is so, so close to having everything click. It is at this point that I tend to put away any phonics programs and work on reading only with books. Because that is really why we read, isn't it... for the story? The more a child reads the better he gets and to get them to read more, you must find stories that engage a child. You need stories that they find interesting enough to keep doing the still rather hard work of reading.
My very favorite easy reader for this purpose is Piggle by Crosby Bonsall. (Sadly it seems to out of print, but you can still buy used copies.) I love it because it is funny. It plays with words. It appeals to both adults and children. It was the first book that B. read that made him laugh out loud. This is the book I got out for K. this morning. He wasn't entirely enthusiastic at the prospect of reading it, so I told him we would only read a couple of pages and save the rest. He read those pages pretty well. We talked about why it was funny. (It's a whole "Who's on First?" sort of running joke.) We got to the end of the page I said we would read to, and K. says, "I don't want to stop. I want to read another page and see what happens with the rabbit." He actually went on to read four more pages before he grew tired.
My other advice for teaching reading? Work on it every day. Do different things. Keep it short. Reading is a rather tenuous thing at the beginning of the process. Children can easily become overwhelmed or develop the mistaken belief they can't do it. Your goal in teaching them reading is to create success. Success builds on success. Positive feelings towards reading go a long way towards allowing the child to feel as though this is a doable thing. (If you stop to think about it for any length of time, you'll soon realize that the fact any of us can read at all is really quite extraordinary.) And continue to read to them. Even when they're older. I've heard of more than one child who balked at learning to read because she was afraid no one would TO her again if she could do it herself. And lastly, let your children see you read. There must be something in it if the adults in a child's life are willing to spend the time on it.