Word Wheels are wonderful for weading pwactice. (Sorry. Had to.) Essentially, they're a hands-on tool for teaching word families: A word ending (such as -ag) is on the top wheel, which is notched; word beginnings are on the bottom wheel (like b, s, sn, w), so one beginning peeks through the notch, forming a whole word. They're just right for preschool through first graders and other new readers getting the hang of phonics--my kids enjoy them. A word slide is similar, and can be used to teach prefixes, suffixes, and compound words as well for older students.
This site has a large number of color-coded word wheels that are easy to print out as pdfs and assemble with a paper fastener (a brad); here are some more challenging wheels, but be warned--there are 48 pages in the document!--so you may want to pick and choose. These word slides teach root words and suffixes, and here's one more set for basic phonics.
For a fun computer follow-up, my kids enjoy this clever Blending Bowl game from Between the Lions, where football players run into each other to form words. Starfall also has "make a word with... (ap, og, etc.)" under the Play column of this page.