The first unit of Level 2 is review, so if there are any deficiencies, you may work on them at that time and go on into the next unit when your child is ready. Children generally do not develop in their abstract thinking skills until they are about 9 years old.
Spelling is actually a very abstract concept.
The letter characters and the stories about them make it easier for the children to understand. Alphabet Island Level 1 is basically for Kindergarten. When you finish with the Alphabet Island, you will continue teaching spelling with the Eagle's Wings Comprehensive Handbook of Phonics for 4th through 9th grade. You will have covered about 40 of the 83 charts in that book when you finished Alphabet Island Level 2. Alphabet Island was designed to be taught by non-teachers, The lessons are meant to be read aloud and there is virtually no advance preparation required.