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My newly turned 3 yr old can read words & sound out words when I point to them one at a time and carefully starting at the first letter. She still goes rather slowly and I'm quite impressed with her ability to sound out new words, even long words, when we do this. Left on her own, however, she doesn't seem to have any sense of order for words, sentences, or even pages. She almost seems to choose random words on random pages. But then there are odd times when she doesn't seem to have done more than glance at a new line in a new book, and while looking at the picture rather than the words will rattle off the sentance accurately. It doesn't happen often, but I've seen it a good handful of times.

I'm not actually worried about this at this stage, but am very curious if anyone has any insight to what she might be doing.

Just guessing here. I'm thinking she is already reading much better than you realize...just silently. She's playing around by choosing random words on random pages out of boredom, or maybe a "game" she has made up in her own mind.

Look at it this way...I'm sure you can glance at a new book and glance at the first sentence and rattle it off while looking somewhere else, right? Because you already know the words, they are easily recalled. Same for her. She's reading the sentence quickly in her mind and then says it.

Try giving her the next two to three levels up in books. See how she does then.