A three year old shouldn't really be able to read. I don't think it is abnormal at all for a three year old to not know any words at all, not reading until kindergarten is usually completely and totally normal, and there's nothing wrong with that.
I think there is a choice you can make that can enable your child to read by the time he's three though. I think that a three year old CAN read, like they have the ability if you teach them. From the time he's a baby until about age four there's this window where their brains are making connections faster than any point in their entire life. It's the time when they learn to talk just by listening to you. If you taught them, they could learn to read at the same time and have fun doing it. Haha I feel like I'm advertising it! lol but honestly, I could read things at three because my mom taught me to with her own methods. I could pick up anything and read it pretty well when I was four. I'm not a genius lol.
A lot of people find this idea ridiculous, but I think it makes more sense than anything. How often do you see grade school kids struggling to read? It's because that learning window closed at four-ish. Just think about how magical it is how kids learn to talk and pick up the language pattern like adding -ed and -s onto words without us really teaching them that.
I've seen other kids doing it too, and I saw an infomercial for a DVD program called "Your Baby Can Read" the other day with home videos from kids that used it and did other stuff with three year olds reading ANYTHING. And babies reading a few things. It was crazy. A lot of people read a lot while pointing to the words to their kids, that's supposed to help. Playing word games and games with letters. There's a good book about it too called "Native Reading".
There's a lot you can do. But it's totally possible, and you don't have to have a "prodigy child" or anything. I don't know, but I strongly believe it's possible. You just have to be patient and spend a lot of time with it.
I'm working on it, I just started letting Eli watch those DVD's the other day. I thought they looked like they would be boring and he would lose interest, I really did. I was hopeful anyway though. Can you believe he LOVED IT? When it was over I was like "Yay all done!" And he started CRYING? lol he threw a fit because it was over. We watched it again cause I was like well hey why not it can't hurt and when it was over he CRIED AGAIN?? lol I couldn't believe it. He's not the kind of kid that likes to watch TV and he never keeps attention with tv shows, but he always keeps his eyes totally glued to the screen when I have the reading dvd on. It's pretty cool.