Since I have a degree in English Education, and the emphasis of my degree was on how people learn language, I thought I would write about how I'm teaching Violet her letters. I don't claim to have the best way, but I can offer my method and reasoning.
First of all, it's been child-lead. We have the alphabet strung up in her room in the form of cute flash cards and a giant stuffed catapillar with the alphabet on it. Of course, we also read with her lots and have since before she was born. We got her a foam alphabet for the bath when she was about 18 months old, and she has wooden flash cards that she has played with on and off. The point is, her environment is "text-rich." The idea is to pique her interest in reading and writting without explicitly teaching it.
I introduced letters with what they spelled. So A was "A for apple" and B is "B for baby." We began this when she got her foam letters just playing in the bathtub. She would pick up a letter and we'd tell her what it was for, or we'd ask her to find that letter. She learned about half her letters that way, but only as what they stood for. As we read alphabet-themed books, we'd say introduce the idea that A is for apple, but the book also has an airplane, because A is for airplane too. This took a while to really sink in, and is still mulling around in her mind. She asks us to write her favorite words out for her. She'll say a word and then we write it and she loves that.
When her textual literacy increased, I noticed a marked increase in her image literacy as well. She began pointing to airplanes in a book and saying airplane, etc. She was "reading" the pictures, which in my mind is just as valid and important of a step. She even has a Curious George book that combines pictures with the text to tell the story.
Once she was recognizing letters, she started trying to sing the alphabet song more. So now we sing the alphabet fairly often, and she calls it "ABC." As she's taken more interest in the song, we've noticed that she notices "ABC" out in the world. We went to Bed, Bath, and Beyond yesterday and she kept saying, "ABC ABC ABC, up there!" She was pointing to the B,B, and B sign. She also points to the words in her books with only a few words and more pictures and specifically wants to know what they say. Other times, we just look through and name the things we see in the pictures. I got her a book that is like I Spy that has a key on one side of the things to look for and then the big picture. She can "read" that herself, and it gives her confidence.
I've always felt that the key to success in school is risk-taking, which stems from confidence. The most important tool we can give our children is the confidence to ask questions, try new things, and explore their world. Then it's just a matter of presenting opportunity as often as possible.
My goal at some point is to make a book in a binder or something with each letter and then for that page have pictures to reflect the words that begin with that letter. Some day.