text: Psuedoword decoding is the ability to pronounce non words.  For example, you daughter might have been given the pseudoword, "bimsop" and asked to pronounce it.  It would show whether or not she could sound things out.  People can learn words by sight - that is, they recognize the configuration of letters and learn that the letters b a n a n a spell banana, but they can also learn words by sounding them out - buh nah nuh.  It's a basis for the phonics approach to reading - being able to decode words by sounding them out.  By using phony words, a teacher can judge a child's word attack skills, using phonics, by eliminating the possibility that the child knows the word by sight.