Last year I started using the Making Words idea with my kinder instead of just typical "spelling" practice.  I introduced each new lesson by cutting the letters and displaying them on the ELMO overhead.  I asked students how we could "sort" the letters (vowels, consonants, word families etc.). Then I often guided them to start with 1 and 2 letter words.  I guided students (before moving on from each group of letters) to see if we could change 1 letter to make a new word. For example we have fan on the overhead, can we change the first letter to make a new word.  Or can we add a letter to the end to make more than one. ETC.... 
Then, the person that came up to "build" the word, was then asked to write the word on our chart paper.  I left that up until we did a new word building activity.  I often separated the chart page by 1-2 letter words, 3 letter words, word family words etc.  Then on the bottom in big, bold print we had a place for the MYSTERY WORD.
I let them use different color markers when they came up with certain words.  For instance a word family word, a word with a long vowel/silent e. etc.  They always amaze me with the things they think of.  I like this activity because the higher students are able to show off their skills by coming up with more complicated, longer spelled words.  (Have your correction tape handy).  
When we have done a few (or many) words together, students are excused to go back to their desks and begin their worksheet.  They cut first, and organize their letters just like we did on the overhead.  I leave the chart paper handy and available to look at in case they struggle.  
When they are finished, they are to organize their letters to show me the "Mystery Word".  If they get it correct, they glue to the back of their paper.  
My kiddos loved doing these activities and I loved seeing how much they learned. 
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