Here's an interesting piece on how we read by Kevin Larson at Microsoft Typography:

The goal of this paper is to review the history of why psychologists moved from a word shape model of word recognition to a letter recognition model, and to help others to come to the same conclusion. This paper will cover many topics in relatively few pages. Along the way I will present experiments and models that I couldn’t hope to cover completely without boring the reader. If you want more details on an experiment, all of the references are at the end of the paper as well as suggested readings for those interested in more information on some topics. Most papers are widely available at academic libraries.

Link via Slashdot.