I can't take credit for this idea. I saw it somewhere, but now have no idea where. Using words from Teach Your Child to Read in 100 Easy Lessons, I made cards and wrote letters on clothespins so my 3 year-old can match them up. It's fun because it's active and novel, and all of that pinching develops fine motor skills!
Note: This photograph makes me glad that, when choosing what table and chairs set to buy my daughter last year, I went with plain wood and paid less than $90.