The phonics system teaches students to read and spell words by sounding them out. Using phonics, students learn to associate certain sounds with letters or groups of letters. When they see those letters, they know the sounds associated with them.
Phonics teaches readers to read unfamiliar words using the sounds of the letters. By associating sounds with the letters they see on the page, students can figure out words on their own. This can help readers progress more quickly as they learn to read because they aren't relying on learning words by memorization to be able to read.
Phonics helps writers by teaching them to spell words by listening to the sounds of the words. If a writer doesn't know how to spell a certain word, she can think about the sounds in the word and the letters associated with those sounds. She may not spell every word correctly this way, but she's likely to figure out how to spell words using this method.
The phonics system uses general rules to teach students to read and write. However, there are exceptions to these rules. Silent letters and odd spellings can give readers and writers problems, as sounding out the word doesn't work in those cases. Some words may have to be learned by memorization.