Words are fundamental to language, linking sound, articulation, and spelling to meaning and syntax; and lexical deficits are core to communicative disorders. Work in language acquisition commonly focuses on how lexical knowledge—knowledge of words’ sound patterns and meanings—is acquired. But lexical knowledge is insufficient to account for skilled language use. Sophisticated real-time processes must decode the sound pattern of words and interpret them appropriately. We review work that bridges this gap by using sensitive real-time measures (eye tracking in the visual world paradigm) of school-age children’s processing of highly familiar words. This work reveals that the development of word recognition skills can be characterized by changes in the rate at which decisions unfold in the lexical system (the activation rate). Moreover, contrary to the standard view that these real-time skills largely develop during infancy and toddlerhood, they develop slowly, at least through adolescence. In contrast, language disorders can be linked to differences in the ultimate degree to which competing interpretations are suppressed (competition resolution), and these differences can be mechanistically linked to deficits in inhibition. These findings have implications for real-world problems such as reading difficulties and second-language acquisition. They suggest that developing accurate, flexible, and efficient processing is just as important a developmental goal as is acquiring language knowledge.