When educators talk about phonics, they are referring to the explicit teaching of the relationships between phonemes (the sounds of language)and graphemes (the written representations of language) so that students can decode (sound out) words.
While it's true that most of us do memorize whole words on occasion (such as names or extremely common words like "the"), it would be impossible for us to memorize every word in the English language. So we must learn how to break words down so that we can decode them.
Learning To Read
For children learning to read, the concept of memorizing thousands of words in order to read all the state tests and class books is impossible to do in the time allotted. But if students are taught phonics and understand how to break down the sounds of words in order to decode them, they can read thousands of words by the end of first grade.
Learning To Spell
Without understanding the link between language sounds and written letters, spelling becomes impossible. Even spell check can't help you if you don't know that you spell the "ch" sound with a "c" and an "h"