"Should I make my child sound out words he doesn't know?"
Knowing the sound a letter makes is very important. But if we sounded out every word, reading would be very laborious and not much fun! Today children are introduced to words within the context of a story, not in isolation. Easier stories tend to have a pattern with very supportive pictures and are perfect materials for phonetic practice. For example, in the book "The Cat Who Loved Red," the text reads, "She loved to play with a ball of red yarn." Using this book, a teacher might ask the child what letter she expects to see at the beginning and at the end of the word "red." In this way, the letter-sound identification is reinforced for the early reader within the task of reading a real book. Knowing how to use beginning and ending sounds, as well as the context of the story and the picture, prevents your child from needing to "sound out" every word.
Remember that phonetic skills are another one of the many tools a reader uses. To practice letter-sound identification, use alphabet books or flash cards with a letter and a corresponding picture.
As books become more difficult, the reader uses many phonetic strategies. This could be searching through a word, using word patterns, or prefixes and suffixes. You'll see your reader grow and use many different strategies.