From a child's birth until he's about 5 or 6 years old, he learns to recognize and decode letters. He'll experiment with the alphabet and the sounds associated with the alphabet. By being read to, kids will absorb language skills and develop a relationship with books, stories and characters. Early exposure to reading will help encourage a positive attitude towards books and reading later in life.
When a child enters first or second grade, he will most likely start to attain language fluency. He will combine letters and sounds to create words and understand basic sentences. Kids at this stage will be able to sound out larger words. Language decoding will slowly become more automatic as they learn to first read orally and then silently. The Institute of Reading Development calls this stage "developing independent reading skills."
By the second or third grade, children will probably be able to read much more automatically. The Institute of Reading Development labels this phase as "reading with absorption," as a child will be able to become involved with children's novels. He won't need to sound out words very often, and reading independently will become a pleasurable experience. Reading comprehension is emphasized in this stage.
Between the ages of 9 and 13, kids will be able to read with fluency and will develop cognitive analytical skills that they will apply to language and reading. Ideally, reading itself will be fully automatic; reading will be a tool used to attain knowledge and become absorbed in subject matter. Reading skills will still improve, but kids will also be able to critically analyze the structure of texts and how meanings are conveyed.