My dd's school recently changed to this. It's a system in which ordinary children's books (i.e. not created specially as part of a "reading scheme") have been graded into levels. So instead of Orange Book 5 in the XX Reading Scheme, the child could read Harry Potter or Captain Underpants or Judy Moody, etc. etc. This makes it very popular with the children and schools sometimes choose it because it encourages reading for pleasure, not as a "chore".
They need to be at a certain standard to begin the scheme. They do a computerised test to assess their reading level, then they start reading books at that level. The school's books will already have been graded, but he could also read something from home if it's at the appropriate level. There's a way that you can log on yourself and find out what AR level any given book is at. Each time the child finishes a book, he/she does a quiz to check they understood the book, and get scored on that. There are target scores for each quiz. Once they've read a certain number of books on that level, they move up to the next one. They collect points as well, but I don't really understand how those are used, except that they get quite competitive over the number of points, and the teacher gives them a sweet each time they hit a multiple of 10!
Generally, it seems to be a very successful scheme in my dd's school. They seem to like the books much better than standard reading scheme books, as they're "proper stories". However, the school needs to have a large stock of books so that all children can be reading at the right level. The books are also graded by age suitability as well as level, to avoid advanced readers being assigned a book that isn't appropriate for their age. At the higher levels, it's hard to find age-appropriate books. But that would be a problem even outside of the scheme.