Dr. Peter Gray of Boston College posted an article on his Psychology Today blog called Children Teach Themselves to Read. In it he describes his research studying a number of unschooled children as well as students in Sudbury schools to see how they learned to read without being explicitly taught to do so.
What he found is that children learn to read in diverse ways and at diverse ages. He explains that our society's obsession with having children read independently in first grade really has nothing to do with child development or a child's natural learning rhythms. It has more to do with the fact that, in traditional schools, the entire curriculum (not to mention classroom management strategies) are built on a child's ability to read. First they learn to read, then they read to learn.
When children are surrounded by reading, they naturally become motivated to learn. The understand that reading is a necessary part of life, and they want to be able to do things that require this skill. Some children will pick it up quickly, some slowly, some through painstakingly trying to decode phonics, some through a whole language approach where they seem to just absorb it. But they will all learn.
Reading is a social skill that is best learned by being part of a community of readers. Not only adults, but older children who read can often present younger children with the best motivation to learn.
Some children learn to read through an interest in communicating through the written word. As they write letters, stories, plays, and books, they learn to read as well.