My oldest, age 6.5, reads at at least 6th grade level (he read Harry Potter when he ws 5.5 and is currently reading C.S. Lewis and Laura Ingalls Wilder books). He became interested in writing and drawing at a very young age and could write his name at age 2. He constantly asked how to spell things and was into writing letters to people, even at 2 and 3 years old. He was reading 1st -2nd grade level by age 4. We read to him constantly and he's always been very into books. He's more into reading that writing.
Our almost-5 year old CAN read, but doesn't really like to. He surprises us when he reads big words because if you ask him to read his response is, "I can't." Argh! It's frustrating, but at least we know he *can* read. We read to him a lot also, and tought him little by little as he asked. He also learns a lot from his big brother. He's more into writing than reading, and does a great job spelling out words, even if they aren't perfect.
Our almost-3 year old can now write all the letters in her name, just not in order! Since she started drawing recognizable people just about the time she turned 2, she's been signing her artwork with an "H" for Haley (her people have circle heads, H shaped bodies, eyes, mouths, sometimes teeth, etc). The other day she asked how to spell and write her name, so I wrote it down for her and she copied it almost perfectly. Every day since she asks to learn more letters and has started writing notes to people as well. Too cute!
Basically they learned through being read to, having an interest in learning to write and read, and through play.