My son started sight reading at 14 months. He'll be three in a month, and this is how it's progressed so far:

A few months after he started sight reading, he started sounding out simple words, then more complex words. He would read books like Go Dog Go to me. (We could tell that he really knew how to read because we could hand him a new book he'd never seen, and he could read it.)

Now, at two and eleven months, he likes to read picture books to me and also by himself. He can read pretty much anything and will attempt to sound out unfamiliar words. He reads about like a first or second grader.

Of course, he still has the life experience of an almost three year old, so we select his reading material accordingly.