ds2 "failed" this! He apparently thought he only had to say the words which made sense and just said "rubbish", "nonsense" or "that's not a word" to the others.
it can't have been well explained to him then. Thing is a child that age is not in a position to judge whether a word is a non-word, a word which is completely outside their vocabulary, or one they are understand but are having difficulty decoding.
What does he do to read a new word? Most children who have been taught phonics at school are comfortable with sounding out and blending a non-word int the same way they would a real word. It's not a new idea - letters and sounds suggested it honks ago and standardised reading tests have used it as a pure test of decoding for decades.