A phoneme is the smallest possible unit of sound that can be identified as a separate part of the spoken language. When a beginning reader is working to sound out words, s/he is actually making the sounds of the different phonemes and attempting to connect them into a larger unit, which is the word being read.
Phonemes are written in the format of the letter(s) or symbol(s) used to portray the sound with a slash (/) on either side. For example, the sound made at the beginning of the words kite or kill would be written as /k/. In some languages, there is a very close association between each letter of the alphabet and one unique sound, so there are as many phonemes as letters in that language's written record. In other languages, including English, there are many phonemes created by combinations of letters; there are also combinations of letters that can represent different phonemes, or sounds when the combination is pronounced aloud.