My daughter and I live in a country where English is not the main language, so I teach English reading at home, using RWI books. Love these books.
There are a very small number of red words. At the beginning, I just read these words out myself without comment. She picked up the, I, said, are and several others by sight. As she is 5.5 now, I am explaining how the red words show sounds in unusual ways.
So,
"We've learned that you can show an /ee/ sound with [ee] and [ea] and [----y] so far, right? So sometimes you can show an /ee/ sound with just this one letter [e]." And then we look at be, we, he, she, me, and practice reading and writing them.
We also did go/so/no in the same kind of way. As a "pack" of words in which the sound is shown in the same kind of way. Rather than throwing random words at her and saying "memorize all these one by one."
Next will be to/do, in which the /oo/ sound is shown with [o].
And so on. For example, in done/some/come/none, the /u/ sound is shown with [o_e] so when she is a bit further along, we will be looking at that.
I am not a qualified teacher so I don't know if this is how it is done in schools, but this is how we do it.