The most important thing to know is that it is meant to be a screening. Screening as in, determine if a child has, and can apply, the basic phonics knowledge required. It is not an assessment (what can each child do?) nor test (have they passed/failed to meet requirements?)
In 99% of cases a teacher should be able to tell you beforehand if the child will pass the screening. Because the teacher has continually been assessing each child's phonics learning and reading.
But very occasionally there is a child who just doesn't get phonics, but has managed to escape notice, as they have used alternative strategies to read, thus masking the fact that they don't really get phonics. These children are meant to be picked up by the screening. Hence there are 'alien' words in the screening, and the words are not in context, so any alternative strategies won't work, only phonics.
The requirement to conduct the phonics screening has focused some schools on actually doing what they are statutorily required to do, i.e. teach phonics (systematic, synthetic phonics, that is). Sadly even now there are schools/teachers who think they know better and would happily gloss over that statutory requirement if it weren't for the phonics screening.
In theory, if a school teaches phonics well, then zero 'test preparation' should be necessary - inside or outside of school. Children should not be prepared to pass the 'test' - they should be taught phonics, which should automatically lead them to pass.
So if a school is giving Y1 children sheets of (regular and alien) words to read in preparation of the screen, or even sending such sheets home as homework, it indicates that a) the school's phonics teaching is so poor that they have opted to 'cram' for the test instead, and/or b) they fundamentally do not understand the nature and purpose of the screen.
Our school for instance refers to the screen as 'phonics assessment' which just wants me to bang my head against a wall.
So no, there is no need to prepare your child for it. Though if the school's phonics teaching is poor, you might want to support your child's phonics learning at home (e.g. provide decodable books for reading practice, if the school provides old-style non-decodable ones). Not for the purpose of passing the 'test', but rather for the purpose of helping them learn to read!
Will the outcome of the screen affect your child in some way? It shouldn't, except if your child is one of those rare ones who have fooled everyone into believing they understood phonics when actually they haven't. In which case 'failing' the check would mean that they will get extra phonics help in Y2, which they wouldn't otherwise, because their phonics weakness would have remained undetected.
If your child can't do phonics well enough to pass the screening, then they should be getting extra support to help their phonics improve. The teacher should be well aware that they are struggling so they should be getting that help before the screening, and after the screening in Y2, and the screening result should not affect that.
If your child can do phonics well enough to pass the screening, then the teacher will also know that, before the screening happens, and will not need the screening to tell them this. So again, the result of the screening won't affect the child.
So really the screening results shouldn't be any surprise to anyone. If a school gets consistently low percentages for passing (i.e. 80-90% or such) then it won't be coming as a surprise to the Y1 teacher(s) that 10-20% of their students each year aren't learning phonics well enough. They will know each year before the screening which 3-6 out of 30 won't 'pass' - in other words they know that they are teaching phonics badly and letting 10-20% of children down, and ergo they will be looking at their phonics teaching strategies.
Or they will blame the government for making them teach phonics and making them administer a pointless test, and continue failing 10-20% of their children every year.