How do you teach a child to read?

This is the main question that has been puzzling me for the past few days, having been trying to get Emilia to read. We were making good progress before, but now I realise that she was only remembering the story, not learning how to read. It doesn't seem as though the school is helping, which is often the case, as they leave struggling children behind. She is interested in stories and books. We went to the library this morning, and we read some books there. Well, I read them, she listened. I point to the words when reading, but it is very difficult to get her to look at the words. She is forever looking around the room or at the pictures. She faces the book when I get her to read her school book to me, but her eyes are off to the side. I am at a loss as to how to get her to pay attention. We took out 10 books from the library, and now Edd's dad and I have spent an hour going over the letters F, U and N to get her to sound them out and put them together to make a word. She is so easily distracted and would so anything not to do as she was asked. It's trying my patience, yet I know that the only way she will learn is if I have patience with her and keep encouraging her. I also found out that her maternal grandfather had told her not to learn to read and that she is stupid and will never learn to read. It's going to take years to undo that damage. I want her to learn to love books as much as I do. I can't believe someone would want to ruin another persons life like that before they've even had a chance. The world is full of some horrible people.